Article / 22 February 2018 at 13:51 GMT

Fibonacci readings point stocks lower

Technical Analyst / FuturesTechs
United Kingdom
  • Dax below the 200-day simple moving average
  • Late-Wednesday selloff leaves S&P 500 vulnerable
  • S&P 500, Dow supported by 200-day SMA

Equity selloff
 Are equity bears ready to re-emerge from hibernation? Photo: Shutterstock

By Clive Lambert

Volatility continues to be seen in equity markets, making it difficult to get a solid answer to the question "is everything okay?" since the big drop a few weeks back.

But our old friend Mr. Fibonacci might be coming to our aid, and could be suggesting that fresh selling is around the corner.

Let's look at some charts...

DAX futures (daily):

DAX Futures Daily
Source: CQG
  • The recent recovery high is 12,529. This is just shy of the (38.2%) Fibonacci resistance at 12,548.
  • We are below the 200-day simple moving average.
  • The relative Strength Index has been flagging a potential top for a while, signalling big bearish divergence.
  • Friday and Monday combined to form a "Dark Cloud Cover" candlestick reversal formation.

FTSE futures (weekly):
FTSE Futures Weekly

Moving to the FTSE, this chart says that 7,266 is an important Fibonacci level, and that 6,950-70 is a big area below.

We dipped through this support level on the big selloff the other week but soon recovered. Now, however, we are failing to retake 7,266.

When we got above here on Monday, we found sellers and ended up posting a "Bearish Engulfing" candle.

Again, the 200-day SMA is above and the momentum studies are showing divergence, signalling continued weakness.

S&P 500 futures (daily):
S&P 500 Daily
US indices have seen a bigger recovery rally than their European and UK counterparts but have now stalled at the 61.8% retracement of the selloff at 2,745. Wednesday's S&P 500 high was bang on this level, followed by a big selloff... the Dow chart (below) is similar, with the added confirmation of a powerful "Evening Doji Star" reversal pattern on the daily chart.

Dow futures (daily):
Dow Daily
To sum up, if the Fibonacci readings are to be believed, we could be failing up here and gearing up for the next push lower. In the S&P and Dow, this would likely result in a fresh test of the 200-day SMAs, which unlike in Europe are below and are still supporting.

If they break? Look out below.

— Edited by Michael McKenna

Clive Lambert is chief technical analyst at FuturesTechs
Alan M Alan M
'Death Cross' showing up on the euro stoxx 50, 50 day is below the 200 day. Although that probably more of an indicator of what has happened already
DudetteUK DudetteUK
Thanks Clive for this very thourough analysis
djustoe djustoe
Hey Clive. do you see any key levels in particular on the Dow? Thanks
Clive Lambert - FuturesTechs Clive Lambert - FuturesTechs
The Dow, along with it's US peers, just keeps going! There doesn't appear to be any stopping thre Bull march over there and now I'm starting to wonder if we're going to try and close the month above January's close. Below are my reports to clients this morning for the US Index Futures.

The Technical Analyst in me says "This is going up, don't get in the way". But the "other voice" in my head says this is total madness!! Best I stick to being a Technical Analyst!
Clive Lambert - FuturesTechs Clive Lambert - FuturesTechs
On the other hand things are still quite different on this side of the pond. The DAX got above that key Fibonacci resistance at 12548 yesterday but have given it all back and a bit more this morning.

The FTSE is also back below the 7276 level that we cited as key last week...


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