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Fibonacci Retracement is a mathematical equation—representing most commonly 38.2%, 50%, and 61.8% of a price trend in a futures market.  These levels are considered strong levels of support or resistance in the market, and typical levels for a correction of a long-term, well-established trend.  A move straight up or down is rare in any market; the Fibonacci Lines are ways to better determine entry points into a market.  Below is a chart of December Corn with the Fibonacci Retracement drawn:

The red line is the established upward trendline, which started in late September of 2006.  The low of the trendline is the point of 100% retracement, and the high of that channel is the top of the retracement study.  As the market breaks down through the established trendline (as shown near the first red arrow), it trades down all the way to the 50% retracement line.  The market then rallies, but cannot sustain the move above the previous high and it breaks down below the 61.8% line.  Each of the Fibonacci Lines represent critical levels in this market.  If a trader is a long-term bull of corn, he/she is looking to buy if the market can sustain rallies through these levels.  In the meantime, traders could attempt to take advantage of the near-term downtrend if the market cannot sustain rallies above the Fibonacci Lines.  In this market, it appears there is not enough pressure to continue trading below the 61.8% line. 

Futures Market Analyst Dennis Gartman highlights retracements he sees in a variety of markets in his publication, The Gartman Letter.  He especially focuses on what he has termed "The Box," created by connecting lines between the 50% and 61.8% retracement lines.  If a market trades into The Box, it is considered that the retracement has run its course and the original direction of the trend will resume in the market.  In the example above, the corn market has done just that.  Attempts to break below the 61.8% line ultimately failed—and on the whole, the market traded sideways between the 50% and 61.8% lines. 

A futures market that has a well-defined channel (either up or down) over the long-term and has established a high and low is a candidate for using Fibonacci analysis.  Drawing a line connecting the high and low of a particular channel using this tool then projects the 38.2, 50 and 61.8 percent retracement levels.  These levels are critical trading levels in these markets. Taking into account fundamental news and watching the markets to determine if it can sustain rallies or breaks above or below these levels can be helpful in determining entry and exit points for traders.