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Fun With Fibonacci And The Great Depression

Tyler Durden's picture




 

The Fib retracement from the highs to the lows in the cycle is now nearly 61.8 (at 1,228)

The retracement from the highs to the lows in the first wave of the Great Depression peaked just below 61.8.

Does history repeat itself, or come in tidy little Fibonacci packages? Are today's math Ph.D.'s even aware of retracements, or do they just know how to buy, buy, buy on ever declining volume? 1,228 is the magical number on the S&P. We'll find out soon enough.

 

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Wed, 04/14/2010 - 23:32 | 301369 lsbumblebee
lsbumblebee's picture

You realize of course they only had slide rules back then.

Wed, 04/14/2010 - 23:41 | 301380 Missing_Link
Missing_Link's picture

I trust any other indicator more than I trust Fibonacci.

Wed, 04/14/2010 - 23:49 | 301386 lsbumblebee
lsbumblebee's picture

Not me. I'll trust Fibonacci any day over a hedge fund algo goldamn sach of shit robot that does not compute.

Wed, 04/14/2010 - 23:59 | 301400 Trading Nymph
Trading Nymph's picture

Heck, I watch fibo levels and fibo MA's...the Physic Majors have them so programmed in....you give me the first few minutes of each day and I can give you the resistance and support levels for the day...it's so predictable.

Wed, 04/14/2010 - 23:35 | 301372 Village Idiot
Village Idiot's picture

We all need a laugh - and sorry for the heist.

 

Dr. Strangelove: Sir! I have a plan!
[standing up from his wheelchair]
Dr. Strangelove: Mein Führer! I can walk!

[discussing the Doomsday machine]
President Merkin Muffley: How is it possible for this thing to be triggered automatically and at the same time impossible to untrigger?
Dr. Strangelove: Mr. President, it is not only possible, it is essential. That is the whole idea of this machine, you know. Deterrence is the art of producing in the mind of the enemy... the FEAR to attack. And so, because of the automated and irrevocable decision-making process which rules out human meddling, the Doomsday machine is terrifying and simple to understand... and completely credible and convincing.

[Strangelove's plan for post-nuclear war survival involves living underground with a 10:1 female-to-male ratio]
General "Buck" Turgidson: Doctor, you mentioned the ratio of ten women to each man. Now, wouldn't that necessitate the abandonment of the so-called monogamous sexual relationship, I mean, as far as men were concerned?
Dr. Strangelove: Regrettably, yes. But it is, you know, a sacrifice required for the future of the human race. I hasten to add that since each man will be required to do prodigious... service along these lines, the women will have to be selected for their sexual characteristics which will have to be of a highly stimulating nature.
Ambassador de Sadesky: I must confess, you have an astonishingly good idea there, Doctor.

Dr. Strangelove: Of course, the whole point of a Doomsday Machine is lost, if you *keep* it a *secret*! Why didn't you tell the world, EH?
Ambassador de Sadesky: It was to be announced at the Party Congress on Monday. As you know, the Premier loves surprises.

President Merkin Muffley: You mean people could actually stay down there for a hundred years?
Dr. Strangelove: It would not be difficult, Mein Führer. Nuclear reactors could - heh, I'm sorry, Mr. President - nuclear reactors could provide power almost indefinitely.

Thu, 04/15/2010 - 00:05 | 301407 Village Idiot
Village Idiot's picture

My first junk - sweet.

Thu, 04/15/2010 - 10:09 | 301884 bugs_
bugs_'s picture

"I wish we had one of them doomsday machines."

Thu, 05/05/2011 - 09:23 | 1242790 falak pema
falak pema's picture

where would you aim it?

Thu, 05/05/2011 - 09:23 | 1242791 falak pema
falak pema's picture

where would you aim it?

Wed, 04/14/2010 - 23:40 | 301379 Trading Nymph
Trading Nymph's picture

omg...makes total sense...Copper hitting 8000 on LME and Ore and all times highs, at the sametime China has to pay people to buy toasters, cars and TV's...this is not going to end pretty.

Thu, 04/15/2010 - 07:40 | 301617 -1Delta
-1Delta's picture

+1 timming is hard tho..

Thu, 04/15/2010 - 09:22 | 301776 curbyourrisk
curbyourrisk's picture

Trading nymph.  What an awesome name.....

Wed, 04/14/2010 - 23:54 | 301392 Sam Clemons
Sam Clemons's picture

We definitely appear to be in the hyperbolic phase of at least this most recent three month cycle.  Just look at the Nasdaq or NYSE hour bars.

 

Oddly enough, the Great Depression wave peaked April 16th.

 

To the slide rule guy, the only reason technical analysis works (or to those who believe in it) is because it picks up on patterns that reflect human emotion which never changes in the markets.  Fear, hope, greed.

 

 

Thu, 04/15/2010 - 00:06 | 301410 lsbumblebee
lsbumblebee's picture

Technical measures emotion? Emotion never changes?

Thu, 04/15/2010 - 00:11 | 301413 Al Huxley
Al Huxley's picture

News almost always conforms to the charts, not the other way around.  Its human nature to try and explain what just happened, and to extrapolate current trends linearly.

Thu, 04/15/2010 - 00:55 | 301442 Sam Clemons
Sam Clemons's picture

Bad wording.  Emotion changes week to week, day to day, but the same emotional extremes are prevalent all through history in markets - Tulipmania, South Sea, Mississippi Scheme, etc.  Markets are human things, or were at one time.

 

I'd say that if something gets oversold according to some indicator, then that reflects fear.  Back in the old days, you didn't need the indicator to tell you there was fear.

Wed, 04/14/2010 - 23:58 | 301398 Al Huxley
Al Huxley's picture

Most of the market trades these technical indicators now, which to me means that either they're self-fulfilling (90% of the time) or in the case of the big plays where it really counts, the PTB can play the expectation, setup the entire market and then break the pattern.  So on the S&P, which will be the tell for the entire US market, I'm inclined to think the Fibonacci retracement will be a trap, not a predictor.

Thu, 04/15/2010 - 00:16 | 301418 moneymutt
moneymutt's picture

my thoughts too... if you have special access to manipulate, you can gain leverage by knowing what many will take action on...let things work normal for a while, when some Newtons has figure out the formulas for motion and can predict when Apple will land, turn on the anti-gravity machine and hear the giant sucking of money out of folks pockets...and then when everyone is used to no gravity, let it natural physics resume...

Thu, 04/15/2010 - 07:27 | 301607 GFORCE
GFORCE's picture

Fibonaaci is the mathematics of the world and can't be manipulated.

A lehman-esque event would see to that. Fib is not coincidence.

Thu, 04/15/2010 - 08:20 | 301644 Mick C Pitlick
Mick C Pitlick's picture

Somewhere, in a deep cave, in Montana, 30 clean cut young men in khaki jump suits sit and watch monitor screens. Section Q is assigned the task of reading ZH, and its ilk. Section G are the TA team, who watch the momentum oscillators and support/resistance levels. A military man, General Fuckem, is in charge.
"Men, we are approaching 61.8% retracement, our oscillators are overbought. Today we're going to take the hill."  A murmur is heard, as the men gird themselves for battle. They know the enemy speculators are weak kneed, but overwhelming in their diffuse numbers and capable of guerilla-style movement.
Fuckem takes out a clip board with daily orders.
"Section F, sell, sell that piece of shit down to 1199. I want the enemy to add to their shorts, suck em in to our ambush area. Then we kill! Section B, at 1199, buy 1 billion contracts. We're going to blow those fairies to kingdom come. I want to see 1250 by noon."  

To be continued.

Thu, 04/15/2010 - 00:00 | 301402 singsing
singsing's picture

WAR IS PEACE

FREEDOM IS SLAVERY

IGNORANCE IS STRENGTH

We can now add one more to the list:

LIQUIDITY IS PROSPERITY

Thu, 04/15/2010 - 00:18 | 301419 moneymutt
moneymutt's picture

no, it should be: Debt is Prosperity....and what's wrong with that ;)

Thu, 04/15/2010 - 00:03 | 301405 dumpster
dumpster's picture

Fibonacci

 

the golden mean ,,,

Thu, 04/15/2010 - 00:15 | 301415 Rider
Rider's picture

As far as I know, some algos have somekind of Fibs interconstructed. I dont think this Bubble will stop 'til QE5 2013, however maybe a small algo hicup or a buying oppotunity at fib 61.8.

 

 

Thu, 04/15/2010 - 00:32 | 301420 ShankyS
ShankyS's picture

Look I'm not saying anything, BUT..

weekly 200ma 1224

61.8 fib - 1228

C=A (for you ewt fans) = 1215

Gap - 1210

Not to mention the A-E wedge ending here with price hanging above the weekly BB for the past 5 weeks.

Many indexes are popping over the top resistance line of the corrective. This would IMO indicate a throwover situation and not a breakout.

All that and the overbought indicators with divergences on the dailys and 60m makes for a tidy little bundle. By no means am I saying anything other than in a sane and fair market this technical set up would normally be one you should not ignore.

My key to this run being over with be the weekly RSI14 breaking the uptrend line. It will be late and not call the top, but it should give the final trend change to the next leg of the market.This one indicator has kept me on the right side of the trade since October.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3186525&cmd=...[s165701390]&disp=P

Since I am in the blogroll I guess it is OK for me to post this link. GL!

http://shankystechblog.blogspot.com/2010/04/i-think-you-have-to-get-read...

Thu, 04/15/2010 - 00:50 | 301440 doublethink
doublethink's picture

 

Thanks for the chart. You should post here more often!

 

Thu, 04/15/2010 - 01:30 | 301469 Sam Clemons
Sam Clemons's picture

Nice.  I've been thinking the same is going to happen once everyone thinks the coast is clear.  Even if the coast is clear, nothing goes straight up or down, even with Obi-wan-bernanke's press.

 

Here's a good one I use for you.

http://stockcharts.com/h-sc/ui?s=$NYSI&p=D&yr=3&mn=0&dy=0&id=p74163259441

Check declining RSI levels, check MACD, check the appearance of a lower high than in mid-March.

Thu, 04/15/2010 - 03:37 | 301524 andy55
andy55's picture

what doublethink said  :)

Thu, 04/15/2010 - 09:43 | 301837 AbbeBrel
AbbeBrel's picture

Love that $CPC Put/Call ratio line-up with SPX!   What a great chart.  Looks like we are in for a Jan 2010  situation again Real Soon Now, at a minimum (or is that maximum!! :-). 

Thu, 04/15/2010 - 00:24 | 301423 alien-IQ
alien-IQ's picture

In the spirit of this post...how about some news from the time:

Market appears to be resisting bear pressure more firmly in recent sessions, in spite of many very poor Q1 earnings statements. While the averages declined steadily in the 3 weeks ended Saturday, many groups have held their own including chain stores, tobaccos, and coppers; in the meantime, volume has been shrinking and main offerings seem to be coming from short-sellers. This indicates technical strength and makes a "selling climax" less likely.

Market conditions seem ripe for technical rally; some traders have quietly been picking up leading stocks in anticipation, though they're protecting positions with stop-loss orders. Some brokers report recent heavy short selling by the public, despite their advice to the contrary; these new recruits have been putting out stocks while some of the old-time bears have been covering.

Wall Street Journal April 14, 1931

http://newsfrom1930.blogspot.com/

Thu, 04/15/2010 - 01:04 | 301450 zerosum
zerosum's picture

Problem is...everyone, including Goldman and the Fed trading desk, is looking at the same data. That's why literally dozens of bearish signals have failed in the past year. All signals are bullish now. 

Thu, 04/15/2010 - 07:44 | 301619 Mick C Pitlick
Mick C Pitlick's picture

Ich bin ein Bull-inner. We are all Bulls now!

Thu, 04/15/2010 - 01:06 | 301453 Kina
Kina's picture

So on the 16th April some workmen will accidentally sever the line between GS and the NYSE.

Thu, 04/15/2010 - 01:29 | 301467 Bear
Bear's picture

Aren't they in the same offices?

Thu, 04/15/2010 - 01:21 | 301463 Ras Bongo
Ras Bongo's picture

“Do you wish to know whether that day is coming? Watch money. Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion–when you see that in order to produce, you need to obtain permission from men who produce nothing–when you see that money is flowing to those who deal, not in goods, but in favors–when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you–when you see corruption being rewarded and honesty becoming a self-sacrifice–you may know that your society is doomed.”

Ayn Rand


Thu, 04/15/2010 - 01:30 | 301468 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I am sure BS knows about this, he is an expert!

Thu, 04/15/2010 - 01:38 | 301470 landho69
landho69's picture

How about this from the same date

Broad Street Gossip: Although business has been declining since the summer of 1929, well-managed corporations are as strong as ever in cash assets; shrinkage has been confined to earnings and market capitalization. This contrasts sharply with previous depressions, in which many cash-poor corporations were forced to borrow at 6% or more. Lending and "heavy investing in securities by corporations is something never witnessed in previous depressions." Despite the long economic downturn, public buying power is still large. NY State savings bank deposits continue to increase, now totaling $4.958B with 5.436M depositors. Floating supply of the stock of many corporations is at a record low, indicating public still has money to buy stocks. Public has also been absorbing $500M or more per month of new securities. Recent $275M issue of treasury certificates drew almost $1B of bids.

Uncanny!

Thu, 04/15/2010 - 08:52 | 301692 hamurobby
hamurobby's picture

Very!  History does rhyme.

Thu, 04/15/2010 - 02:04 | 301483 John Law
John Law's picture

Another interesting bit on those charts, both put in head and shoulders after the initial bounce and failed to break the neckline both times and then went into full melt-up mode.

And for those that doubt Fibo, it's very effective. Especially in the FX markets. I don't believe in the whole number sequence thing, I think it's just a self fulfilling prophecy thing. But if you trade you cannot ignore it. And 61.8% is a very big level in fibo.

Things seem to be stacking up now, you also have strong divergences in the PVT Stoch. and the Elliott waves here also. Wave two should be completing right now or very soon. Then comes the big one, wave 3 down to fresh new lows. The question is will the government allow it will elections coming up? (Should be well into the crash by election time if they do.) But, my guess is no way! At least not yet. The Fed will run QE 2.0, 3.0, 4.0 and send a $50,000 check to every man, woman and child if they have to, to stop the crash. But, in the end the markets and the dollar will find their true value, zero.

Thu, 04/15/2010 - 03:41 | 301519 John Bull
John Bull's picture

Ahhh, Mr. Law...very good. Only genuises dare (and are capable of) using the famous Elliott wave!

Thu, 04/15/2010 - 06:26 | 301566 Orly
Orly's picture

Yeah, it should be obvious that we are entering the b-wave of III...oh, wait!  Did that come out of my mouth?

I meant the 3-wave of IIb...or is it the d-wave of V?

Elliott Waves are horseshit.

/:

Thu, 04/15/2010 - 08:33 | 301654 FischerBlack
FischerBlack's picture

Lawlz.

Truly, the best way to make money using Elliot Wave analysis is to publish books on Elliot Wave analysis.

Thu, 04/15/2010 - 09:47 | 301841 John Law
John Law's picture

I don't use EW all that much. I have a friend who uses them big time. He was telling me this earlier this week. We will see if he gets lucky this time. I know all about the EW faliures. Especially EWI, according to them 1100 on the S&P was going to be the top.

Thu, 04/15/2010 - 03:19 | 301515 nicktd
nicktd's picture

Back then dollar digits weren't stored on magnetic strips and regurgiated thru silicon pnp junctions. Overcoming 61.8 is just a flip of transistors switches. I think humans will only intervine once we approach 76.4 during summertime, which forms a nice parabolic pattern. Beware of hal 36000!

Thu, 04/15/2010 - 03:20 | 301516 John Bull
John Bull's picture

Why nobody mentions the Elliott Wave? Or should we say the Elliott Tsunami?

Thu, 04/15/2010 - 03:50 | 301527 AUD
AUD's picture

I dunno about the USA but here in Australia, credit spreads are falling but still mighty wide, compared to pre-crash levels. The market maker, the RBA (so in other words the government) is making little attempt to tighten spreads.

I don't see any immanent boom in the market but no immanent crash either. In fact I see more of the same, except for a continual rise in the gold price.

So just more of the same monetary disorder until the day gold 'takes no prisoners'.

Thu, 04/15/2010 - 07:31 | 301612 GFORCE
GFORCE's picture

I believe Australian decision makers are being made to look more clever than they actually are. China imports and stimulus saved them from having to make any tough decisions..

The worst of the crisis is ahead of Australia, not behind.

Thu, 04/15/2010 - 05:40 | 301546 Graphite
Graphite's picture

If the Fed understood the magnitude of the deflation problem they'd already be sending out the checks, instead of talking about hiking the discount rate. They're already too late -- they've fallen behind the curve the same way they did in 2008, where every new bailout and liquidity facility just gave way to lower and lower prices.

The market's got them convinced the same way it does all the money managers coming on CNBC telling you to buy assets X, Y, and Z. But you can't wait until *after* the S&P slices through 800 and then start printing again; by then it will be too late.

Thu, 04/15/2010 - 06:06 | 301556 ratava
ratava's picture

you are forgetting ben the marginal liquidity bernanke and his short banning ES gunning cabal, this aint turining until .80

Thu, 04/15/2010 - 06:19 | 301559 Headbanger
Headbanger's picture

And as noted here:

http://danericselliottwaves.blogspot.com/2010/04/elliott-wave-update-13-...

The 1930 rally peaked April 16 !

Thu, 04/15/2010 - 06:37 | 301576 PhD
PhD's picture

The patient is not going to die until it is taken off life-support, and that is not going to happen as long as everyone believes the patient to be dying.

 

However, with the "good news" piling up like shit in a congested public toilet,

the patient is likely to die at any time now.

 

 

 

Thu, 04/15/2010 - 07:39 | 301616 islander
islander's picture

When the time comes for this market to rise or crash , the powers that be, will make it happen. All the discussion and technical mumbo jumbo, though showing cohesive mathematical formulas, will never allow us to see a top or bottom in the manipulation pit. Roll the dice.

Thu, 04/15/2010 - 07:58 | 301624 RunningMan
RunningMan's picture

A (potentially naive) question for the traders around - how much of algo trading gets run off technicals like Fibonacci patterns? I understand all the math, but seems like the relevant question is how much trading gets done that use these types of factors as primary drivers for buying/selling? If all the volume is driven off program/algos now, and everyone had their 1929 scenarios programmed in, this would be a trigger event for a massive instability, no? I'm not a program trader (lots of math background, system theory and plenty of code and numerical optimization in the past, but not with trading) so not sure this is how it works.

Thu, 04/15/2010 - 08:49 | 301687 Kina
Kina's picture

I gather the algos are meant to keep the tide coming in bit by bit, unless overwhelmed.

The rally has been predestined since this rally began.

 

 

 

Thu, 04/15/2010 - 10:11 | 301889 bugs_
bugs_'s picture

Kondratieff winter vs Elliot dark age.

Thu, 04/15/2010 - 10:20 | 301915 Pladizow
Pladizow's picture

History does'nt repeat it self, but it does rhyme. - Mark Twain.

Thu, 04/15/2010 - 10:34 | 301951 stormsailor
stormsailor's picture

i traded /es successfully using fib lines, support and resistance, candle shapes, etc. from 07 through last march 09. 

then it seemed that everything i had ever learned went out the window.  even worse,  were the head-fakes that would suck you into a trade only to reverse.  this happened time after time throughout 09 and still seems to be the rule.  head and shoulders,  cup and saucers,  flags no longer worked to the downside. so rataga, mick, and al huxley your post strike true to me.

 

however,  those fib lines have held true throughout the history of the market no matter the manipulation,  as manipulation has always been a part of the market.

 

an arguement could be made that so many of the levers are controlled by the manipulators now that they can over-ride all of market history.  but i have an idea that whatever "it" is that makes fib lines hold true in the market cannot be controlled.

 

so i set up my short trade and if it breaks above i'll take it on the chin (i have a pretty good "beard" after trading this market in 09,lol)

and if the golden numbers work, i'll bank the profits.

 

 

Thu, 04/15/2010 - 11:09 | 302031 OBRon
OBRon's picture

Not sure of what retracement to which you are referring, Tyler.  At least on the Dow, the high in 1929 was 386.10 while after the crash, the low in 1932 was 41.63 for a decline of 344.47.  After the completion of the first major wave in the recovery (or 5th minor wave - where we supposedly are now), the Dow hit 195.59 in 1937.  That would be a retracement of 153.96 points, or 44.69% - falling just short of the 50% Fib retracement point by my calculation - not the 61.8% retracement.

If you are referring to a different index, please let me know... Thanks!

Thu, 04/15/2010 - 13:01 | 302305 You Cant Handle...
You Cant Handle the Truth's picture

Fibonacci is the snake of leapfrogging sums, winding and knotting the economy in  a synthesis of arbitrage and raising of stakes;  the false growth of recursive leverage that has only one possible conclusion.

Do NOT follow this link or you will be banned from the site!