|On March 30, I wrote in my piece "Resistance Levels In Trending Markets" that the Dow Jones 30 was trading within a key group of resistance levels forecast using Fibonacci lines. This grouping of prices was from approximately Dow Jones 10,900 to 11,000.|
|This is not the only significant price level the broad market has hit predicted by a Fibonacci method. The Fibonacci fan is a commonly used tool for attempting to identify support and resistance levels. Shown in Figure 1 is a Fibonacci fan drawn between the all-time market high above 14,000 and the 2009 market low at 6,500.|
|FIGURE 1: DJ 30, WEEKLY. And here's a Fibonacci fan.|
|Graphic provided by: Wealth-Lab.|
|You can see that the Dow Jones 30 broke through all the resistance zones identified by the fan method. However, it did at least have short-term price breaks at the 38.2% and 61.8% levels. Now, the DJ 30 has run into the less-commonly utilized 76.4% level. Note that the market went slightly above the line but closed below it, which so far is a price failure.|
|Normally, this fan level might not hold much predictive weight. However, given that it coincides with a previous warning provided by the Fibonacci retracement levels, the resistance zone tends to be stronger. In all likelihood, this bull move of the previous year is just a bear market bounce. If so, then the convergence of these Fibonacci resistance levels would provide a logical point for the market to turn back down into the next leg of the bear.|
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