Fibonacci Numbers and the Market

Without going into the history, the following outlines the basic Fibonacci series is: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89... as the sequence progresses each number is the sum of the previous two numbers (ex. 89 = 34 + 55).

Also the ratio between each successive number approaches 1.61803398...
(ex. 89 / 55 = 1.61818). This number is known as PHI and is seen in nature and ancient architecture.

Our purpose is to see how useful these numbers are in the financial markets. Use google or your library to get a history of Fibonacci and the number sequence.

The number sequence is often used in market cycle (ex. 34 or 55 trading days) or (55 or 89 trading weeks).

PHI or it's inverse is often used for price retracements and less often for time forecasts. Thus we have 1.618, .618, .382, .236 (ex. .382 * .618)

Just for interest for Astro fans,
5 heliocentric conjunctions of Earth and Venus: 5x584 days =2920 days.
8 orbits of the Earth around the Sun: 8x365.25 days = 2922 days.
13 orbits of Venus around the Sun: 13x224.7 days = 2921 days.

Examples of all these can be found below.

Following is a weekly chart for crude oil dated Oct 12, 2009.



The above chart shows a retracement range from the top July 2008 to the bottom Feb 2009. Note as price of crude oil rises it stops just short of the 38.2% retracement then goes down and bounces off the 23.6% level. Incidentally crude has just completed a 16 week cycle and is due to head upwards. If it breaks through the 38.2% level it may take off much higher. Watching this level is most important.

Following is a daily chart of the DJIA showing a 55 trading day cycle, the blue line.











Following is a daily chart for the DJIA showing PHI future extensions based on the fall from Oct 10, 2007 to March 9, 2009.