Stocks: Fibonacci Friday

Stocks: Fibonacci Friday

US stocks on Thursday did something that the media called "dampened sentiment" or "a retreat" and working traders call "moving down after a big up day." Whether you attribute emotion to it or standard market behavior, this morning things look less damp.  



Stocks: Fibonacci Friday
Stocks: Fibonacci Friday

U.S. stocks rose at the open Friday. Within the first 30 minutes, the S&P 500 rose 10 points, or 0.5%, to 2,100, which would mean a weekly gain of 2.3% if it holds. The Dow Jones Industrial Average gained 99 points, or nearly 0.6%, to 18,058, which would mean a weekly gain of 1.8%.

Friday is quadruple witching day, which means the expiration of equity and index options and futures, all four at once. This usually leads greater volatility and volume, but floor traders will tell you that with index arbitrage program trading comprising as much as 70% of total volume, the patterns of volatility have changed since the 90s.

The return to an uptrend started overnight after losses on Thursday. The dollar had rallied with the euro falling over 1.5% down to $1.0642. The S&P 500 energy index fell 1.7% with shares of some energy companies posting some of the largest losses. Those losses affected the market as a whole, pulling down the index futures which hedge funds and banks use both to hedge their long positions and to trade outright.

Meanwhile gold futures rose 1.5% to $1169.10. Crude oil continued to slide, leading some to speculate again about the return of $2 a gallon gas in the US. Both crude and the metals are up slightly this morning.

The dollar is weaker this morning, pushing the EURUSD and other currencies higher. The euro made highs above the 1.0750 level. Other than the quad witch, there are no economic events of note other than speeches by Fed presidents Dennis Lockhart and Charles Evans.

2015-03-20 Nadex SP500 Fibonacci

You may have seen that the sideways drop in the S&P 500 from Wednesday's highs stopped yesterday at what might seem a random spot to the untrained eye. But if you're a technical analyst you probably know about Fibonacci, which means you saw that it was a 50% retracement. After that retracement, it turned back up, stayed rangebound at the 38.2% level. The 38.2% level corresponds to the number known since ancient times as the Golden Mean, or phi (Φ).

(If you're thinking, "Fibonacci? I thought that was a bow-tie pasta," you're thinking of Farfalloni, which are delicious with pesto and sun-dried tomatoes. This being Friday, I might add that it goes great with seafood. But back to the S&P 500...)

Some people insist that applying such esoteric concepts to the market is not logical (never mind that the Greeks created both Western logic and Φ). All I can say is, look at the chart: the market stopped at the Fib levels: 50, 38, and then 23.6. Given that the Fibonacci numbers and ratios appear throughout nature, in the kernels on ears of corn and the shapes of flowers and vegetables, for example, it's worth studying if you haven't.

Khan Academy has a brilliant and fun Fibonacci video that's great for hedge fund traders and their kids alike. (If you have trouble understanding it, just ask a kid to explain it.)

US stock futures were higher pre-open, suggesting some bullishness to come during the day. Given the dominance of MOC (market on close) buying and selling as well as the dominance of algorithmic trading in driving price action, traders will be watching for a phenomenon late in the day known to some as the Late Friday Rip.

Whether that end-of-week rally happens or not, there should be plenty of volatility during the day for traders of short-term Nadex binary options and others.


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