Before we begin, we need to make one simple assumption.
The assumption is that the market has topped out because of multiple lower highs and lower lows since the DJIA intraday high of 10,753.6 on February 19. If you bring up a chart for DJIA, you can draw a dome along the line from December 2003 to May 2004.
There are two lower highs in April, 10,570.8 and 10,537.3 respectively. DJIA had three lower lows after February 19, two in March and one in May at 10,092.5, 10,007.5 and 9852 respectively. 9852 was an intraday low, but the fact that it broke the previous low of 10,007.5 still has significant implication. There were no higher highs and higher lows which would've broken the topping trend.
So where is DJIA heading next?
By using the Fibonacci number, we can calculate the next intermediate low for the index. We multiply the latest rally distance to 2.618, and deduct that number from the high of the rally.
10,570 – (10,570 – 10,007) x 2.618 = 9353
Noticed I didn’t use the latest rally point of April 21 to 27, because the 4-day trading period is too short for the intermediate-term prediction. But it can be used for short-term prediction. If you use the late April rally to calculate the next low point, it came up to 9785, which is only 67 points from the low of 9852 occurred on May 12. In other words, by using April 21-27 rally data, the Fibonacci number predicted the next short-term low with 91.2% accuracy. That is as good as a prediction you can make for anything.
Since the goal is to pinpoint where DJIA is heading in the intermediate term, the longer March 24 to April rally is used instead, and Fibonacci said 9353.
So, there you have it. The next objective for DJIA is 9353, but the next question is when.
And, I will leave that question open for future posting.
posted by jason @ 11:23 AM
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