Sunday, October 24, 2010

10/24/10 - Fibonacci At Work?

I was just thinking about the current pattern of the market and the similarity between the 11/09 bottom thru 4/10 top and 7/10 bottom thru the current high.

I also find Fibonacci mathematics interesting and figure I'd see if good ole Fibonacci was at work.

Obviously, I do not know if any of the above means anything but thought what I found out was interesting enough to share.

Upon examining the first three wave set (blue), leg 2 retraced leg 1 88%. Leg 3 extended leg 1 by 145%. Calculating the ratio of the leg 2 retrace (88%) to leg 3 extension (145%), we get .61. That's pretty darn close to the golden mean.

Repeating this process for the second three wave set (red), we get .60. Again pretty darn close.

What does this all mean? Could it mean that this leg of the rally is pretty much over? I don't know.

If it does, I'm not implying that a crash is coming or a major selloff, though that can always happen. I'm just looking at this as possibly marking a spot for a reversal.

One additional thing I added was determining the next ratio at .50. That would take the market to 1218. I think we've seen that number before.

If the market does run to 1218 and turn, that would also mark a double top and set up wave B of the flat for my option 2 posted yesterday.

All in all it's pretty interesting to me.
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