Brickell Analytics’ CEO Isaac Gilinski Explains Fibonacci Retracement
Is the trend your friend?
There are certain time-honored terms and phrases that instantly reveal what someone does for a living. For example, lawyers talk about demurrers (and if they’re feeling particularly feisty, they throw in a few malfeasances and torts for good measure). Doctors talk about agonals, BMPs and CBCs.
Then there are finance gurus like Brickell Analytics’ CEO Isaac Gilinski, who immerse themselves in the world of technical analysis, and indeed, the vocabulary of something that most folks outside of the financial space find somewhere between intimidating and impenetrable: Fibonacci retracement.
The theory underlying Fibonacci retracement is actually quite interesting — and indeed, accessible to folks without a trading desk that looks like NASA Mission Control. Essentially, they are used to define market correction (or pullback) levels. They are also used to predict the duration of counter-trend bounces, which some investors try and exploit to generate small, but significant gains. Commented Brickell Analytics’ Isaac Gilinski: “The basic mantra in the investment world is `the trend is your friend.’ However, contrarian investors swim against the current, and some are quite well rewarded for their foresight and fortitude. It’s definitely not a strategy for the easily alarmed or faint of heart.”
Technically, a Fibonacci retracement level is created by taking two extreme points in a chart — typically the peak and trough — and dividing the vertical distance by the key Fibonacci ratios. For my comprehensive analysis, two Fibonacci retracement levels are especially important given what is happening in the market right now: 50% and 75%. The back story is explained below.
“A major bull market took place between 1927 and 2000 with negligible or non-visible corrections, but in March 2000 the 1500 resistance level stopped the rally,” commented Isaac Gilinski. “After that, the SPX declined 50 percent to the 750 support level that was tested in July and October 2002, and then retested in March 2003. After a triple bottom was reached at 750 in March 2003, the SPX surged until it hit 1500 in October 2007 — before the 1500 resistance level stopped the rally for a second time. Over the next 13 months, until November 2008, the SPX plunged 50 percent to the 750 support level, where it was retested and slightly breached in March 2009 after touching 666, before it bottomed out and took off. Essentially then, what we see is that in 2008 and 2009 the 750 support level stopped the decline for the second time after a major sell-off, and for the fourth time in the 2000s — specifically in 2002, 2003, 2008 and 2009. Despite a minor drop to 1800 between 2014 and 2016, the SPX has faced no hurdles since the 666 March 2009 low.”
Once the support and resistance levels are analyzed and identified — 750 and 1500, respectively — the next step is to figure out how they are connected, and what this could mean for the market. That is where the 50% and 75% Fibonacci retracement levels enter the picture and portray a severe bear market.
“It logically follows that support and resistance levels must be related to another number — kind of a big brother that calls the shots. This third number is 3000, since 750 is 25 percent of 3000, and 1500 is 50 percent of 3000. As such, when 3000 is used as the top for the Grand-bull market, 750 and 1500 arise as important Fibonacci retracement levels. Ultimately, this means that the SPX should be finishing its 92-year old bull market at 3000 — plus or minus five percent — and then retrace between 50 percent and 75 percent of the advance. Our analysis is that the SPX has now started its fifth and final wave, and should climb to around 3150.”
Fibonacci retracement advocates, who subscribe to Isaac Gilinski’s analysis, are preparing for the looming bear market. The SPX is currently at 2950; and if 3150 is the top, the market has about 7% more to go before the bull market ends. Historically, buying the dip has been the right strategy, as the trend is your friend as the market typically goes up. But once the bull market ends, the trend won’t be your friend and Fibonacci retracement will be.
Disclaimer from the Author
All views, thoughts, and opinions in this article belong solely to the author and do not necessarily reflect those of Isaac Gilinski or Brickell Analytics. Additionally, the prediction made by Brickell Analytics discussed above was one of many predictions made by the company and not all predictions are accurate. Brickell Analytics does not provide any personalized investment advice, nor does it engage in the trading of securities. The content of this article should not be considered investment advice or an offer to sell or the solicitation of an offer to buy any securities. All profits are for demonstrative purposes and are not a suggestion that similar or future profits may occur. Past results are not necessarily indicative of future results. All investments involve risk and potential loss of principal. It should not be assumed that future investors will experience returns comparable to those of the research discussed above.