How Far is the Market Going to Fall?

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InvestorPlace
Yesterday’s tape action did little to change the technical condition of the market. The charts tell the story. Despite the possibility of a dead cat bounce (a misleading rally that eventually fails), the charts say: “intermediate trend down.” But if the overall long-term trend is still up — assuming that we are in a bull market — then the question must be asked: “How far is the market going to fall?” With the charts of the S&P 500 on Monday , and the Nasdaq on Tuesday , I took the “support line” approach to answer that question. The S&P 500′s first zone of support is estimated to be 1,290 to 1,330, and the second is 1,275 to 1,290. The Nasdaq’s zones of support are 2,705 to 2,760 and 2,680 to 2,700. There is, however, an exotic method of prediction that has been applied by science, and especially the science of mathematics for over 800 years. It is called the “Fibonacci Cycle.” Leonardo Fibonacci was a 13th-century mathematician who discovered a number series in which each succeeding number is the sum of the two immediately preceding: 1-1-2-3-5-8-13-21, and so on. When applied to stock market advances and declines, the most commonly used Fibonacci percentages are 33.3%, 38.2%, 50%, 61.8% and 66.6%, and they are used to determine retracements of advances and declines. How does this method compare with the support zone analysis of the S&P 500 done on April 11 ? Notice that the Zone 1 begins at 1,290, which compares closely to Fib 33.3% (red dotted line) at 1,287, and that the Fib 50% is almost smack in the middle of the low bar of March 16, which was the low of the last correction. The two percentages of 33.3% and 50% are the two most relied upon Fib numbers. And 61.8% and 66.6% are commonly relied upon for important major lows following a sharp advance. Conclusion: Analysis of the S&P 500 using two very different technical tools confirms that the first major support zone begins at approximately 1,287 (Fib) to 1,290 (support zone). The second Fib number, 1,259, could become an extreme support low if Zone 2 is penetrated. If these support areas fail, then the ultimate support (without changing the long-term trend to a bear market) is likely to be at the Fib 1,238 to 1,230 support. For one stock to sell now, see the Trade of the Day . Today’s Trading Landscape To see a list of the companies reporting earnings today, click here . For a list of this week’s economic reports due out, click here . If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net .