Fibonacci’s Ruled the Afternoon, Did they Rule the Morning Too?

• Posted by Greg Harmon
• on March 2nd, 2011

Using the gap up high of 133.69 on March 1 and the low just before noon today at 130.35 as the range, 3 different sets of Fibonacci’s took control the back half of the day Wednesday. Look at the SPY 5 minute chart below. When the downtrend that printed the low was reversed just below the Tuesday close, the SPY started to rise. As it did it passed through the 23.6% Fibonacci retracement line but stalled as it ran into the Fibonacci fan line, in green at 1. At that point it followed that fan line lower to before jumping off momentarily and then reversing higher near the previous day low, at 2. From there it rose but stalled at the 23.6% Fibonacci level again, at 3, before moving higher to stall again at the fan line, at 4, and then ultimately to the 38.2% level where it met resistance, at 5. From that high it fell below back within the Fibonacci arc, and rode the arc lower to the 23.6% level again, printing a bullish hammer to end the day, at 6.

It is interesting to note that nearly the entire day was spent inside that one Fibonacci arc. There are other interesting points as well that raise questions. First the move down from the high to the close Tuesday was entirely contained by the left most fan line. Next the move higher through that fan line from the open met resistance at the next fan line and near the Fibonacci arc before reversing lower. This fascinates me. It is as if the price action was predicting where the low would be to create the bounds for the Fibonacci’s, and obeying them before they existed. What is even more bizarre is that it is not the first time that I have seen Fibonacci’s, that did not yet exist, be useful in understanding price action after the fact. Coincidence? Maybe, there are those that think that you can randomly draw lines on a chart and get as much out of the exercise as any other Technical Analysis method. Perhaps with all the computer power today there are programs that are predicting these outcomes. Enough of the speculation. What ever the case Fibonacci’s did prove useful Wednesday and will continue to be used to trade.

I am hoping for some good comments on this one. Fire away.

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