Using Fibonacci Dates For Catching Major Turning Points


The market over the past year has been incredibly tough.
 The
periods that turn out to be tops come so close to giving the “all clear” sign,
only to break down hard with nary a pullback, frustrating both shorts and longs
who both waited for a breakout or a breakdown with pullback that never
occurred.  The periods that turn out to be bottoms crash lower and lower until
the pain is too great for most, and then rally huge, often making the lion’s
share of gains in the first few days of the bounce, again keeping all but the
sharpest of traders from capturing the move.

I have been
fascinated, even obsessed, by the timing of these turning points. Given the
possibility of being ready for a 10% move in the S&P as happened in July and
October, it’s hard not to have at least a passing interest.  I recently started
using Fibonacci analysis, and while traders like Kevin Haggerty and Carolyn
Boroden do a superb job at using Fib levels and zones, I don’t know if anyone on
this site has ever used Fibonaccis to count the number of trading days between
turning points.  Let me explain.

 

On the chart above,
I’ve put an arrow above days that ended up representing a major market top or
bottom. When one counts the number of trading days between these points, we find
some interesting results. The number of trading days between March 19 and July
24?  88, one less than the Fib number 89.  Taken in isolation, this might be
seen as a coincidence. However, if we keep going, we get the table below.

Date 1

Date 2

# of Trading Days

Fib Number

March 19, 2002

July 24, 2002

88

89

July 24, 2002

August 22, 2002

21

21

August 22, 2002

October 10, 2002

34

34

October 10, 2002

December 2, 2002

36

34

Once we see this, it
becomes a little harder to write off the evidence as sheer coincidence. The more
I look into it, however, the more I am convinced that there’s something here.
Going back to the July 24-August 22 period, we see a mini-top on 7/31 (5 trading
days after 7/24) followed by a 3 day pullback, followed by a 13 day rise to
8/22.

Looking at the time
since Dec. 2, we see a 20 (Fib 21) trading day decline into Dec. 31, followed by
a January effect rally which lasted 8 days, bringing us to today, 13 trading
days after the top on January 13.


Obviously, even if
we assume that counting Fib trading days will tip the hand of all major tops and
bottoms, there’s no way of knowing for sure which level will be the right
one. However, I’m writing this just to say that if we’re 21 or 34 or 55 trading
days from a major top or bottom and we’ve been trending solidly for awhile, it
might be a good idea to at least be aware that a reversal could be in store.

For my part, I’m
waiting for Feb. 19. Starting from the 7/24 low, we got a top 21 days later,
another bottom 55 days post-7/24, and another top 87 days post-7/24.  The next
major Fib number is 144, and February 19 is 144 trading days after 7/24.  I’m
not making any predictions, but I’ll be interested to see what happens.

Conor

csen@hmc.edu