Fibonacci and the Dow Industrials

By: Robert McHugh | Sun, Apr 10, 2005
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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.

We delve into this Fibonacci mathematical formula extensively as part of our regular markets technical analysis newsletters, reporting on the theory, evidences from the past, and projections for the future. We discuss why this is happening. Our subscribers gain a unique advantage with this information, along with a host of other technical analysis research, charts, and data for a modest annual fee of $250 per year. We offer less expensive six month subscriptions, and also free 30 day trial subscriptions for folks just discovering us.

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And do not lean on your own understanding.
In all your ways acknowledge Him,
And He will make your paths straight."

Proverbs 3:5,6


 

Robert McHugh

Author: Robert McHugh

Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.

Robert McHugh

Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.

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