Fibonacci analysis shows Wall St's bullish run could break records
The weekly chart demonstrates that the S&P is in a bullish phase after coming off a low point in the week of November 25, 2011. Then the market was down 10.37 per cent from the top of its previous upswing represented by the rising green line to the left of the red downward line at November 25. That low point set the stage for a series of higher high and higher low swings which saw gains followed by retractions of between 10.94 per cent and 4.8 per cent.
The time magnitude of the downswings was between four and nine weeks. Those figures suggest that if the market continues to climb it will continue the path of higher highs and higher lows with downswings within the time and distance magnitudes experienced in the recent past.
By combining those time and distance magnitudes with Fibonacci number retracements we can get some indication of where the market will head in coming weeks. At the time of writing, the chart was showing the S&P almost at a Fibonacci retracement level of 2. That means the market has gone up by twice the magnitude of the most recent down cycle marked by the red line.
Should the market break above this level then the next level of resistance will be at the Fibonacci retracement level of 2.618, 61.8 being a significant Fibonacci point. That would put the market into record territory at 1864.79 points.
However, were a correction to occur then Fibonacci retracement levels measured downward from 1813.25 would come into play. These are marked on the chart in red and range from a retracement of 0.382 or 1749.73 points to a retracement of 1.618 at 1543.21. Any downward progression through these levels would experience added resistance by the existence of peaks and troughs from the market's upward move that would turn to support levels.
Watch if the market begins to fall as each resistance level could provide a buying signal where a rally may commence.
The market could sustain some significant falls and still remain broadly in an upward trend. However, if it were to test and convincingly break below 1601.02 and then 1543.21 it could signal a trend change. Historically, the market tends to rally around Christmas.
This column is not investment advice.
rodmyr @gmail.com.
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Frequently Asked Questions about this Article…
The S&P 500 index is currently in record territory, having surpassed its pre-global financial crisis peak. It is experiencing a bullish phase with a series of higher highs and higher lows.
Fibonacci analysis is used to predict potential resistance and support levels in the S&P 500's performance. The index is approaching a Fibonacci retracement level of 2, indicating it has risen by twice the magnitude of its most recent down cycle.
Key Fibonacci retracement levels for the S&P 500 include 2.618, which would put the market at 1864.79 points, and downward retracement levels from 1813.25, ranging from 0.382 at 1749.73 points to 1.618 at 1543.21 points.
A trend change in the S&P 500 could be signaled if the index tests and convincingly breaks below 1601.02 and then 1543.21 points, indicating a potential shift from its current upward trend.
While the S&P 500 is in record territory, there is talk of a bubble. However, the market's current bullish phase and Fibonacci analysis suggest it may continue to climb, although corrections could occur.
Investors should watch for resistance levels that could provide buying signals if the market begins to fall. These levels might indicate where a rally could commence, even if the market experiences significant falls.
The S&P 500's downswings typically last between four and nine weeks, with retractions ranging from 10.94% to 4.8%.
Historically, the S&P 500 tends to rally around Christmas, which could be a consideration for investors looking at seasonal trends.
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