REPOST: On Fibonacci

Submitted by Mark Hanna

Courtesy of MarketMontage. View original post here.

For you sports fans out there, we are now to the point when one thinks “selloff”, it reminds a person of Jim Mora’s incredulous “Playoffs? Playoffs??!!!?”.

But in theory selloffs can still happen… even when central bankers flood the world with dinero.   Granted the selloffs in those periods are short and sweet; generally in the 4-5% zone, but they do happen.  In a market that has not sold off even 1% on the senior indexes once during the entire year, it is hard to remember what one of those even would feel like.  But using our trusty Fibonacci I posted 2 charts below on the S&P 500.  Fibonacci retracement levels are one thing that has generally worked very well even during periods of central banker asset price manipulation assistance.  The tricky part is they are obvious in retrospect but you are never sure exactly what ‘base’ to use.  For example, in the next pullback (whenever it may come) do we use the early October low, or the mid December low?  I don’t know, so I’ll post a chart for both.

Using the October lows, we see even a 38.2% retracement would take the S&P 500 down to the 1260 level.  I realize that feels “impossible” right now, but I am just outlining a probability.  We won’t even bother to discuss a 50% or 78.2% retracement at this point.

Using the December lows, we have more feasible figures in a ‘teflon market’; a 38.2% retrace takes the S&P 500 down to the 1292 level.

These are a long way away from where we sit now… and would require Apple to actually sell off – which it will eventually.  So just some markers in the road…

(Of course as I type this the market begins selling off )

 

Disclosure Notice

Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog