Prediction Points: Fibonacci and Trend Changes

      In the March of 2003 Special Report titled “ A Case for a Bull Rally ” I discussed a long term Fibonacci pattern I had become aware of in the markets. In summary, the report detailed the progression of important market turning points delineated by the Fibonacci sequence. Based on the pattern, March of '03 marked the 13 th year and the next expected Fibonacci turning point in the sequence. We now know that this projection was right on the mark as the March low turned into one of the longest intermediate rallies of the last 45 years.

      This is all great news, but not necessarily helpful in that the next turning point predicted by this sequence will not come in until 2024 with 21 years being the next Fibonacci value for the sequence. However, the Fibonacci rations can be useful at many different intervals. In the http://www.guerrillafunds.com members area, I maintain a daily Fibonacci grid from all intermediate market turning points. At NFA, we also keep monthly and weekly Fibonacci counts. Below is a long term weekly chart of the Dow Industrials with the Fibonacci sequences calculated in weeks. The red lines mark the Fibonacci sequence starting from the January 14, 2000 all time high at 5 weeks, then 8, 13, 21 and so on. (Weeks 1,1, 2, 3 are omitted for better viewing) The green lines mark the Fibonacci sequence starting from the September 21, 2001 low which followed the resumption of trading after the 9/11 World Trade Center attacks. This low coincided exactly with the Fibonacci All Time High (ATH) sequence 89 week turning point.  While you can see that these sequences do not mark every major turning point, they did consistently mark multi-month turns. Furthermore, when the two sequences met, as in October of '02, the move was dramatic.

      Once again, we have the two sequences converging near the end of this quarter. Unfortunately, we have no way of knowing if this could mark a market high or low. The current pattern of three declining tops and excessively high levels of bullish sentiment suggests a market high before an accelerated decline. However, I also have significant cycles and other analysis that point to the potential for a significant move up. I am not trying to be coy or vague. I don't know which way it will go. I will let the market tell me. What I do know is that I will take which ever trend emerges seriously and expect the last few months of indecision to be over.