Death to the bulls

September 30, 2015 12:18 PM

Investors and traders know the importance of fundamental and technical analysis in predicting future market movements. Fundamental analysis is subjective on how the reader analyzes the numbers. Technical analysis is plotting numbers into an equation giving the reader a specific, accurate number, therefore eliminating emotion in making a decision.

Let’s take a look at one strategy.

Strategy: Fibonacci sequence and golden ratio

Goal: Achieve a proactive approach in investing by eliminating emotions with factual numbers.

(Leonardo Fibonacci—was an Italian mathematician, considered to be "the most talented Western mathematician of the Middle Ages.")

In mathematics, two quantities are in the golden ratio if their ratio is the same as the ratio of their sum to the larger of the two quantities.

    (a +b)/a = a/b = Φ

Where the Greek letter phi Φ represents the golden ratio. Its value is:

    Φ = (1 + √5) /2 = 1.618…

Apple’s price movement is an example of how mathematics described in our strategy become a powerful tool in locating price value.

The chart above is a weekly chart of apple’s stock price. Analyzing the chart leading into their February 2015 earnings report our analysis includes apple’s prior high on 9/17/2012 to its low 4/15/2013 using Fibonacci retracements. The Value of the 1.618 retracement equals 128.80 stock price.

On Nov. 24, 2014, Apple’s stock makes new highs we now use this high to insert a Fibonacci retracements to apple’s new low on Jan. 12. The 1.618 retracement equals 128.80 stock price. 

After Apple’s stock price reached it golden ratio number 128.80 the stock price broke down signaling a top to apple’s stock price.

The benchmark of the Unites States stock market is the S&P 500. The index based on the market capitalizations of the 500 largest companies having common stock listed on the NYSE or Nasdaq. 

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About the Author

Lance Ippolito is president and director of LAI Capital Corp.--a Commodity Trading Advisor. Beginning his career trading index futures and equity options in back of college classrooms to later becoming an analyst for Citigroup. The art of trading has always attracted him. Emphasizing on technical analysis, Ippolito is a currently trading everyday focusing on commodities, interest rates and index futures.