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How Low Will Stocks Go? Use This to Find Out
Plotting Fibonacci gives us an idea of potential pullback levels.
In my last post, I highlighted the fact that trading is all about eventualities.
None of my eventualities came true, so I haven’t traded.
I’ve just been observing in absolute horror and lusciously waiting for an opportunity to pounce, like a fer de lance.
Here’s a breakdown of where we go next, or continue reading.
Plan Your Trade, Trade Your Plan
Now I’m coming up with new eventualities. The first is a candlestick at Bollinger extreme that sends the market on a relief rally.
Only good news — really good news — could sustain the rally.
The other eventuality is we sink even further. My gut instincts tell me much further. With rates rising in the economy, there is bound to be an over-levered company go under. (my prediction: Royal Caribbean Cruises - but that’s for another post).
How low can stocks go? Use Fibonacci.
I’ll save you the full explanation, but Fibonacci is a natural phenomena of nature. Financial markets are made up of mass psychology. Mass psychology is also a natural phenomena. As such, Fibonacci can be applied to financial markets.
You can see in example, after example, after example, how reliable it can be.
Fib retracements, when plotted on a range from low to high (or high to low), gives us Golden Ratio areas of potential support.
S&P 500 (Weekly)
On the S&P 500:
~3,500, which also happens to be just above the 2020 August high - which may act as support. This means there is confluence at this level, strengthening the price level as support. The February, 2020 high before the Covid collapse is just below 3,500… strengthening the level of buyers who step in. This would be a 37.6% sell off from the highs of 2022.
~3,200, which also happens to be the September, 2020 low that begin with the sell off in August. Again, since Fibonacci is lining up with a major support level, this gives us confluence, strengthening the price level as support. This would be a 50.5% sell off and put us at February, 2020 levels.
The same analysis I use in the video can help you determine these same levels on the NASDAQ and Dow Jones.
Happy Trading 😊