Interesting Fibonacci Development
I was doing some work with Fibonacci retracements this afternoon and found a particularly interesting confluence I thought I’d share with you. It’s on the Dow Jones and it involves the current low and how it almost mysteriously fits within the current structure.
Dow Jones Weekly Chart:
First, let me start by saying this is not the ‘classical’ way to use Fibonacci, but stay with me for a minute.
That being said, the ‘normal’ use of Fibonacci was doing what I was attempting, which is to start with a swing high (14,198) then drag to a swing low (7,450) and then draw the Fibonacci grid upwards to figure out where a possible up-swing move could run into resistance (or for setting price targets). That’s what the blue numbers actually represent, and that’s the most common interpretation you’ll get for a Fibonacci grid and you can leave it at that before moving on to the ‘eerie’ portion.
However, what’s fascinating (and potentially monumental) is that the entire Fibonacci grid represents the perfect 38.2% retracement which stopped the January down-move, and the 50% retracement which stopped the July move, both to the near exact Index Level which I find endlessly eerie.
In January, you could have extended the grid to make it look like this (of course there would be no price action to the right) to have received the same grid. Actually, it would have been a better practice to do so in July (lows) when you could have seen the price terminate at the 38.2% retracement as well at the 50.0% retracement and then drawn the grid down to the 7,450 lows for a target. Now, that’s an extreme (mis)use of Fibonacci, but I am quite intrigued that the current Dow lows forms this completed structure.
Even if you don’t want to take it that far, you have to admit that it’s a little strange that the January and July price lows coincide exactly with the respected large-scale Fibonacci relationships of the broader down-impulse.
If anything, it’s just a neat little pattern to help try to add some potential structure to this wild recent market action – if that indeed can be done.
I’ve noticed similar “amazing” traits constructing fib levels myself. If you have the capability, track the Dow from the Oct ’74 low to the 2007 peak. The 50% line catches almost perfectly both the ’98 and 2002 lows. And just happens to be about 40 Dow points below Friday’s low. What a wild coincidence!
I’m using Telechart and I’d like to know (even privately) whether your work reflects this.
Hey Corey ,
I have been playing around with extensions for the last few days and have blogged on it here
http://stopsarein.com/2008/11/21/fib-numbers-pure-coincidence-lets-see/ and in a few other articles.
Dear Corey:
Is it not the implication of your Fibonacci post that we are at a long term if not intermediate term bottom?
Would appreciate your interpretation of the chart of TLT for the last 4 months. If we are topping there then is not the case for the stock market even stronger?
PK,
I’ll check that out and will likely do a post on it as well. Thank you for that inspiration – I look forward to seeing that development. Fibonacci analysis continues to amaze me.
David,
Good call! Fibonacci is one of those universal wonders perhaps, and the more we work with it, the better we’ll be at interpreting it. Thanks for the link! Good post.
Tom,
Precisely! But keep in mind this is a free blog and I want to give you the tools to augment your own analysis, or cover certain developments you might be overlooking or that I find interesting. I try to keep my opinions out of it as much as I can but I’m finding overwhelming evidence – currently – that seems to point that we’re experiencing at least a short-term to intermediate term bottom at the levels attained next week. I’ll work on TLT by this evening – thank you for that inspiration.
Ok, I tried to reconcile the interpretation of the market club dow target of 6700-6800 on a descending triangle and the fibonacci retracement lines, Eliot Wave. If I draw the fib lines from around 14000 to 6700, I believe the lines match up quite nicely on closing values. My tool isn’t precise, but here it appears that FIB and a desc triange both signal a lower dow target. Here is what I see.
14002 High
11214 Broke Support in Sept.
10353 Broke in early Oct.- not much support here
9491 Top of the range we’ve been in for a while
8426 Support just broke, retesting. Where we are today, roughly
6702 Target down .. still ahead?
Don,
You’re right on your triangle targets. Take the height, subtract from the base (at break-out point), achieve price projection target. That’s near 6,700.
Doing EWT projections, if we assume that this is a standard Elliott impulse, if Wave 3 was the longest/strongest (we assume it was), then Wave 5 will approximate Wave 1.
Wave 1 was 14,200 to 11,600 which is an estimated distance of 2,600.
We then assume Wave 5 will be the same as Wave 1, so wherever Wave 4 terminates to the upside (let’s say 10,000) then that gives us an EWT target of 7,400 which is relatively week (would be sort of a 5th wave truncation).
We can also assume that Wave 5 might be equal to 1.618 times wave 1 which would be 2,600 x 1.618 or 4,200. If we assume Wave 4 truncates at 10,000 (another assumption) that would give a Wave 5 termination target of 5,800.
These are rough estimations, though, and are based on the assumption Wave 4 ends around 10,000.
If it ended at 11,000, then the equality (Wave 1 = Wave 5) target would be 8,400 (a very weak Wave 5 target) or if 5 = 1.618 x Wave 1 would give us a more reasonable target of 6,800, which coincides with your 6,700 Fibonacci target.
Thus, 6,700 would be near a confluence target (confirmed by at least two price projection methods) which would tend to be more reasonable a target.
In terms of Elliott projections, it will depend on where Wave 4 ends to run the Wave 5 projections.
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