For Fibonacci Lovers: Recent Dow Action

Apr 10, 2007: 10:08 PM CST

Hey Fibonacci Enthusiasts: An interesting pattern occured in the Dow Jones Index that I thought was worth showing.

Since March 19th, we have had (in order):

  • A 5 day rally
  • A 3 day decline (counter-rally)
  • An 8 day rally

These not only constitute perfect Fibonacci sequence numbers, but evidence of greater (recent) buying pressure in the short-term.

dow-apr10.png

When people think of Fibonacci numbers, they often think of retracements/support/resistance/price projections. Also recognize that – at times – Fibonacci patterns are evident in daily price action and in trends (up days vs. down days). This would be a difficult way to trade, but it is worth analyzing and seeing if there is a possible edge. If for nothing else, it provides good market trivia.

Another interesting bit of trivia:

According to a Wall Street Journal Article, the Dow rising eight days in a row has set a record not achieved in the last four years!

This is further evidence of the lack of “trendiness” in the last few years of market action (and higher odds for mean reversion, than sequential price continuation on subsequent days).

If Fibonacci is correct, and if our Stochastic sell signal is correct, and if prior resistance is correct (two days of failure at 12,600), and if the prior gap serving as resistance is correct, then we should see short-term lower prices (a counter-wave or corrective price wave).

If not, then the market just did more than set a record – it beat high odds of a temporary (but brief) decline.

2 Comments

2 Responses to “For Fibonacci Lovers: Recent Dow Action”

  1. Simply Options Trader Says:

    Hi Corey,
    We saw the pullback today, the odds are just much higher. I share your views, but was using the financial sector as a sort of leading indicator in my posthere

  2. Corey Says:

    You’re right! Great post and analysis – very timely ahead of the quick pullback today. Financial stocks can and do lead the broad market. Brett Steenbarger has posts along this line as well. You are wise to note divergences between key sectors and the market, and include volume analysis along with the studies.

    Today was a great day, as I traded early on leverage and pared down towards mid-day and maintained a small position until the close, which picked up more profit. My analysis and market action were in line, which is a reassuring feeling, but days like this when trades work out not only immediately, but better than expected (at least faster on the short-side) can really help build confidence in trading. They don’t come around much, but we all need little “pick-me-ups” in the market. We can’t get overconfident, because trading is only odds (as you also point out), but over time, odds play out favorably with discipline and recognizing them (especially situations where the market has much higher probability of one direction over the other).

    Thanks for sharing your insights!