Wall Street Greek: Fibonacci Retracement - Elliot Wave Theory Offers Omen

elliot wave theory ominous fibonacci retracement

Visit the front pages of Wall Street Greek to see our current coverage of economic reports and financial markets.

(Tickers: DIA, SPY, QQQQ, NYX, DOG, SDS, QLD, XLF, IWM, TWM, IWD, SDK, ICE)

Fibonacci Retracement Completed - Elliot Wave Theory Offers Omen

Fibonacci retracement Elliot Wave Theory econometrics programmatic trade

"Technically speaking," we have finished our "multi-week correction," albeit after a smaller-than-expected pullback from the August 7th peak, one that lasted barely ten trading days. The correction, which would be better characterized as a sideways consolidation, completed little more than a modest 23.6% Fibonacci retracement of the rally that began on July 13th.

After taking out the 1020 resistance level on Friday August 21st, the next logical upside target for the S&P 500 index is in the vicinity of 1047. It continues to be my opinion that Greek readers should carefully evaluate their portfolio and consider judicious profit-taking opportunities as the market benefits from programmatically-traded capital flows and arguably over-inflated P/E ratios.

Of greater importance than this near-term move is the eventual top to the bear market rally, which may in fact terminate at the 1047 target. In an upcoming series of articles, we will examine a number of different technical analysis techniques in order to gain insight into the strength and duration of the current rally.

Once such approach, Elliot Wave theory, suggests we are very near the completion of an historic wave "B" up in the context of an A-B-C wave sequence. At the culmination of this wave B movement (i.e. the bear market rally that began in March), wave C down will likely retrace back down to the 666 low and perhaps even carve out new lows in the process. At least that would erase such an ominous valuation.

Greek readers unfamiliar with Elliot Wave may refer to Elliot Wave International for free tutorial information. Though EW can hardly be construed as a comprehensive explanatory "theory" in the realm of physical sciences, it does offer reasonable insight into mass market behavior and certainly helps explain the movement of capital markets better than many other models offered by economic behavioral scientists.

My own interest in Elliot Wave stems from the basic observation that stock market indices, when viewed as time series, do exhibit wave behavior. This same behavior can be deconstructed by applying much more sophisticated analytical techniques and is the subject of my own work. Of course, none such method is completely deterministic.

In any case, if a given market model is to be useful as a predictive tool, we would want to be able to estimate in advance the index price at the pinnacle of the bear market rally and provide a reasonable guess as to the time frame in which the apex will occur. For such a prediction, we might examine a few different tools commonly associated with technical analysis: