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There has been much talk in recent days of the US Tech 100 moving under its summer 2022 lows, which is clearly a significant level. However, on this chart we throw up the Fibonacci levels calculated over the major move from the pandemic lows of 2020, when the index traded under 7,000.
Often too much “magic” can be placed on Fibonacci levels. At its most basic it simply shows how often after a major move price action can retrace around 50 percent of this move as the market takes time to consolidate. This occurred early in the summer of 2022, for example.
This is a broad target however and the Fibonacci levels - or simple 1/3 or 2/3 levels - can be drawn as moves back towards the 50 percent area can undershoot or overshoot.
On this weekly chart we can see how the index has dropped under the 50 percent level, and quickly moved down towards the 61.8 percent lower band.
Historical evidence suggests that if price action falls significantly over 50 percent, it increases the chance of a full 100 percent retracement*.
The 61.8 percent area can be used as a final warning this more negative outlook is on the cards, as it gives enough “wiggle room” for moves towards 50 percent to overshoot a little.
So, while the summer 2022 lows have been breached while the index stays above the 10,500 area, many in the market will feel confident this remains a simple 50 percent move that has overshot a little, giving upside targets of the 38.2 percent area (around 12,900).
This makes the 10,500 area an interesting level to watch if the current negative period persists. This is because moves through there would open up more serious downside targets of the 2020 pandemic lows.
*Please be aware that historical performance does not guarantee future profits
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Please note that the presented content refers to the Oval group which contains two legal entities: Monecor (London) Limited authorised and regulated by the UK Financial Conduct Authority (FCA) with Financial Services register number 124721. Monecor (Europe) Limited authorised and licensed under the Cyprus Securities and Exchange Commission (‘CySEC’) with license number 096/08.