Fibonacci and the Dow Industrials
Major Trend Turns Have Been Coming on Fibonacci Numbers and Ratios
Leonardo Fibonacci was a twelfth century mathematician who is credited with identifying a unique series of numbers that are related to each other in a .618 to .382 ratio, know as the golden ratio. The series begins with the number 1, and then adds itself to get the second number in sequence, 2. The prior two numbers are added together to get the next number in sequence, in this case 3. (1 + 2 = 3). The next number is 5 (2 + 3 = 5). Then 8, 13, 21, 34, 55, 89, 144, 233, 377, etc... What is unique about this sequence of numbers is that the ratio of the first addend to the total always rounds to .382, and the ratio of the second, larger addend to the total always rounds to .618. For example, take the Fibonacci number 55. Its first addend, 21, divided by 55, equals .3818181818, which rounds to .382. The second addend, 34, divided by 55 equals .618181818, which rounds to .618. 21 plus 34 = 55. This is true of every Fibonacci number.
What is amazing, is that these numbers seem to pop up everywhere in the markets - all markets - including Equities, Commodities, Gold, Bonds, you name it. Oftentimes secondary corrections of a primary trend retrace a Fibonacci percentage of the prior move, either .382 or .618. But Fibonacci doesn't stop with price targets. Oftentimes trend turns, either tops or bottoms, occur when a cluster of Fibonacci numbers of trading days from several different prior tops and bottoms converge around the same time period, as shown coming up in late May 2005 in the chart on the first page of this missive. Usually when we see this many prior turns forming a Fibonacci trading day cluster, it is a significant turn coming.
But, there is an even more amazing phenomenon involving Fibonacci numbers and ratios. Are you ready for this? Every single top or bottom in the Dow Industrials since its all-time top on January 14th, 2000 has occurred in a unique Fibonacci golden ratio with another top or bottom. Every one!
What we are saying here, is that a mathematical formula has been able to identify every single top or bottom in the Dow Industrials over the past five plus years. Obviously, knowledge like this could be enormously valuable to traders and investors.
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