Wednesday, August 4, 2010

Amazing Fibonacci

You don't think technical analysis has stolen the reigns from fundamentals?  I just plotted the October 2007 peak versus the March 2009 lows, and all the Fibonacci levels (for more about this fella go here); my precision in the chart is not perfect but you can see what has happened the past 3-4 months has been all about Fibonacci.

[click to enlarge]

Look where we peaked in May, the 61.8% retracement of the entire drop from Oct 07-Mar 09
Look where we bottomed last month, the 38.2% retracement of the same move
And look where we are hanging around now (which was also the June intraday high level before the 17% selloff), the 50% retracement

It's one thing to try to retrofit data to fit your charts, but this is just a simple measure of the bear market move since Oct 07, and the key Fibonacci levels. The way it fits like a glove is startling to say the least.

I think all technical analysis self reinforcing... it only works because people believe it works.  And the more people who believe it, the more it works.  Why the 200 day moving average means something, but the 134 day moving average means nothing is because we place an emphasis on the former figure; otherwise it is meaningless  This data above tells me a lot of silicon (and some carbon based life forms) are putting a lot of emphasis on Mr. Fibo.

In the intermediate term (multi month) we now have a clearly defined range marked by the April highs and June lows.  In Fibonacci language we are ping ponging between the 38.2% retracement and the 61.8% retracement... and currently sit smack dab in the middle clinging to the 50% retracement.  Any move in the coming quarters outside of this range would be extremely meaningful.  Until then it is really all about churn.

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