Prague Twin

Thursday, April 05, 2007

Where Are We Going?

The Dow is bobbling around at the 61.8% retracement of the downward move from the record high of just under 12,800 down to about 12,060. It is currently trading at 12,524. Why is this number significant? This level is providing resistance at the fibonacci, or golden ratio. Traders just call it the 61.8 fib.

If you are interested in why this is significant, check out this Wikipedia article on the subject.

Essentially, we expect that after a sharp move down, a retracement will occur. If the market fails to breach this 61.8% level, we expect it to go back down (perhaps only 61.8% of the original 61.8 fib). But should this level be breeched significantly, we would expect the Dow to match it's high in short order.

Tomorrow the "mother of all data" will be released. Expect the market to meander along today, as it did yesterday, with investors waiting to take it's cue from tomorrow's NFP data. Rumor has it that the data will be good.

I guess my theory that we will see a correction to 11,700 is out the window... or is it?


  • eeek, math!

    By Blogger Frederick, at 12:39 AM  

  • I have no idea what any of that means. Which is why I'm likely to have a very lean and hungry retirement.

    I'm the perfect example of why 401Ks are dangerous. I might as well be expected to take out my own appendix.

    By Anonymous abi, at 5:02 AM  

  • I agree Abi. I am retarded when it comes to this stuff.

    By Blogger Graeme, at 6:07 AM  

  • I never knew that Fibonacci series' were used in predicting market trends. See...learn something new every day.

    By Anonymous Anonymous, at 2:21 AM  

  • Job numbers much higher than expected means no rate cuts for a while. Do you think they'll be a rate cut before the end of the year?

    By Blogger reality-based educator, at 4:35 AM  

  • praguetwin,

    Though calculating Fibonacci numbers is an example of fun with math, I'm not sure they're of the slightest use in the stock market.

    I suppose movements of important composite stock-market numbers sometimes coincide with patterns derived from elegant mathematical formulas, but not often enough to really matter.

    However, as they say, as soon as it's said that some abstract calculation predicts market behavior, various efforts are undertaken to force the claim into the realm of reality.

    In any case, if you believe the lunatics screaming about the environmental devastation about to befall us in the next decade, two decades, century, depending on which lunatic howling in the desert is your favorite, why would any of this Fibonacci stuff matter?

    Apparently human life on Earth is headed into permanent eclipse as we become victims of our own prosperity.

    The solution, according to Al Gore, is to force the return of humans to an earlier era, like the Stone Age, to head off the misery of slightly warmer weather.

    I haven't gotten Al's opinion on what to do for the hundreds of millions of people, probably billions of people, who still lack clean drinking water.

    They aren't waiting around for Global Warming to kill their descendants a hundred years from now. They're getting it over with by dying horrible deaths from water-borne diseases today.

    Of course, if corrupt and incompetent governments were to invest small sums in water treatment facilities, the populations of such progressive countries would multiply, thereby increasing the number of people forced to die from Al Gore's bugaboo. That's probably why Al wants us to focus on what might happen in a hundred years rather than defeat today's easy problems that will only boost the death toll from his imaginary problem.

    By Blogger no_slappz, at 2:47 PM  

  • NS,

    You really ought to update your blog. It seems you have a lot to say that has nothing to do with the top of this post.

    I'll leave your comments up because I find them amusing, but it would be gracious of you to stay remotely on topic.

    By Blogger Praguetwin, at 6:07 PM  

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