Since the pullback from the highs on the 17th of March we have now reached a key Retracement level and there are conflicting forces at play. In the short term we had identified a Bear trend with lower highs and lower lows as defined by Charles Dow. Longer term we have found a base at the 38.2 Fibonacci Retracement of the move up form August last year. This line comes in at 887.6 and although we have dipped below here, its where we are on a closing basis that matters where Fibs are concerned. We are currently toying with our Trend Resistance line at 908.
Indicators in Play
Trend Resistance Lines are probably the most basic and easy to understand tools in Technical Analysis. Its just a matter of joining lower highs together with two and some prefer three points of contact.
Fibonacci introduced his sequence of numbers to mathematics back in the 1200’s. These numbers appear in all walks of life but have an eerie influence on trading. We use the 38.2 level as an indication of the strength of the correction or indeed if the longer-term trend has changed contact.
Summary
All the signs are that we may well have done enough to the downside. We will gain in confidence once we get through the Trend Resistance at 908 but we can’t get too carried away until we have breached the last peak failure at 955. A close below 887.6 would not be good news though.
David has been
analyzing and trading the worlds financial markets for the past 25 years. After an initial grounding with Mercury Asset Management and Warburg Securities he went on to set up his own brokerage operation in London. Since then he has appeared regularly on Bloomberg Television and been involved in providing analytics on behalf of some of the worlds major exchanges. He is also a member of the Society of Technical Analysts.
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