2012 Market Review Speed Retirement System January 4, 2012

The fibonacci sequence is derived by adding and adding the result to the last number. ie, 1+2=3, 3+2= 5, 5+3 =8, etc

The end result it that you get a numerical relationship between the numerical sequence that some traders feel have significance in the marketplace.

The main fib numbers are 23.6%, 38.2%, 61.8% and 100% There are two other levels at 76.4 & 78.6% The expectation is that price will hold support (or resistance) at one of these percentages.

I’m not going to go into a lot of detail on the fibonacci sequence because you can google it and find an incredible amount of information on the subject.

The other way the fib numbers are used are to predict price extensions. The common fib extensions are … 1, 125%, 161.8% & 261.8%

Ok, so how do you use this? One way to use the fib #’s are to see where you expect the market to stop after an impulse move. (either up or down)

For example, after a stock moves up and begins to correct, you would expect the downmove correction to stop at either 23.6%, 38.2%, 61.8% or 100% of the last upmove.

The depth of the correction will give you a clue as to to the strength of the last upmove. For example, a correction that stops at under 50% is considered strong.

Likewise, a stock that moves up (or down) less than 100% of that last impulse move is thought to be weakening.

Remember, this works for both upmoves, as well as downmoves.

I don’t want you to think that this is the holy grail, but it can give you clues at to what you expect the price action to do.

Let’s look at some real world examples.

For those of you who were members when Speed Retirement started back in April of 2010, you will remember that I was looking for a market top last April.

This is why …

Let’s look at a recent example …

This is a 5 year monthly chart of the S & P 500 Index …

I like to use the fib levels in conjunction with price bars. As you can see, the 61.8% level is VERY powerful!

Let’s look at the Top of the Market on May 2, 2011

Let’s look at the Monthly Price formation on the S & P 500

S & P 500 Price & Time Projection

We know that based on the Double inside day formation on the monthly charts for the S & P 500, we expect a big move after the high or the low is taken out.

I’ve shown these charts before, but these are the two possible scenarios that can happen.

Scenario 1:

Scenario 2:

What conditions would confirm either pattern? Pattern 1: Bear Market- a) Low at 1010 taken out b) the 21 ema to cross under the 50 ema (at least) Pattern 2: Bull Market- a) A few closes above the high of the inside day, and b) preferable a close above the October high

I know, but even during the big bear market of 2007 to 2009, the 21 ema did not cross under the 50 ema until it cost you a lot of money!

Ok, so let’s shorten up the ema’s on the monthly charts …

Let’s project where the market could go assuming the “C” point is confirmed at the October Low of 1074.

Projection Top Range 1: = 1627 Range Average = 1530 Range 2: = % of October Price Bar Added to the High = =1510

Price wants to retest old highs and they become natural price targets. Old highs are 1440 and 1576 (historical high)

Projected Time to Top Range 1 took 14 months Range 2 took 11 months Average of the two = 12.5 months Therefore, the projected top, assuming a bottom in October 2011, is anywhere from August 2012 to November 2012

Upside resistance is at After that, the next major resistance line is is a key line on the upside. I don’t expect we take that out the first time up. Support lines are at 1250 and then at 1218.

This is from the October 5, 2010 State of the Market Presentation.

Let’s look at sentiment & % of Stocks above their 200 Day moving average.

I don’t know if we will get a generational correction, like the one that ended on March 9, 2009, but we will have opportunity!

Buying at the generational bottom in March 2009, afforded untold opportunity. Look at VCI, PCLN, GMCR, F, CAT, ARCC, LULU, CMG

Thanks for Watching! Speed Retirement System January 4, 2012