Fibonacci levels in the news : a contrarian take.

I had written about key Fibonacci levels in a post about a week ago. Turns out Fibonacci has really been in the news for retracement levels this week. While the absolute numbers might differ marginally, the upshot is the same. These levels are being watched by a huge number of investors. Consider the sample below:

• This CNBC video uses Fibonacci retracement levels and points out the negative price divergence in the RSI level for the Shanghai index. The rally looks to be running out of steam. He also discusses the Shanghai index as a 'leading indicator' (something I've alluded to in the past).


• Afraid to Trade has this post on S&P 500 resistance levels using Fibonacci.


• David Sneddon from Credit Suisse points out the 1007-1014 retracement level on the S&P 500, and that the advance-decline line has flat lined.


• This chart from the Big Picture blog has retracement targets similar to Fibonacci levels of 1014 on the S&P 500.


• Zero Hedge shares this chart on the Fibonacci retracement levels.


• Target and support levels for the Shanghai index in this CNBC video are similar to the levels posted using Fibonacci.

You can read my earlier analysis by clicking here.

The key point is that most commentators see the equity markets upside capped at around 0-10% from here, but the downside is considerable, quite possibly even retesting the March lows. Even the non-Fibonacci fundamentals driven consensus seems to be for at most a rally to around the 1,050-1,100 mark on the S&P 500. This suggests we’ll either:
a) go down around here, or
b) go right through 1100.

Consider the second case. If one were to look at all this Fibonacci analysis from a contrarian perspective, this might be bullish news. Just as the widely discussed head-and-shoulders pattern turned out to be a head fake and the equity markets rallied sharply, the current consensus on using Fibonacci retracements could be a bullish omen.

To paraphrase the Bespoke group, with so many market and economic indicators reaching pre-Lehman levels, one has to ask: Will the market be next? Reaching pre-Lehman levels would take us to 11,000 on the Dow and 1,200 on the S&P 500.