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Well the markets have faltered at the altar of the 50% retracement level – well and truly. I think we can say that the 1.4% fall last week and the solid 4.5% for this week - as at the time of writing (Thursday) - is a significant retreat:
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So the focus now is where may this retreat rest?
Let’s look at some possible levels. An obvious first one is the 38.2% retracement at 4556 – another important Fibonacci level. But there are others:
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It is interesting to note that each level of these important Fibonacci number sequence has seen significant market activity and I would not be surprised to see the market settle at any one of them. The market of course is not that predicable and I work on the basis that the market ‘fools most of the people most of the time’. Every one of us I am sure can recall many a time when we have fallen victim!
With the last 10 days experiencing declines I would expect we will see some recovery in the form of a wave four rally:
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So we may see a rally to 4700 - 4750 – but before a wave five low to 4560 perhaps. That likelihood could make it a good enough run down to make some great money shorting for a few days. Many of us are waiting on the sidelines for that merciless chance. And because many of us will use those naughty CFDs it will have quite a dramatic effect.
If that does not happen we will sit on our cash and await consolidation and the next move up.
Now all this dissertation on retracement arose out of Naresh’s email a few weeks ago. Thankyou Naresh. A nice call my friend.
If you have a point of view or question and can keep it succinct and it is of wide readership interest then write in and we may just give it the rounds in this column!
Enjoy the ride
Tom Scollon
Chief Analyst
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