Fridays spike down was not pleasant if you were looking for the bounce to continue. However, the recovery was impressive and the fact that this is yet another higher trough or dip (See Charles Dow) does mean the short term picture is still up. Last weeks high at 919.25 is the first resistance going into this week with intra day support at 855.75. Going up through the time frames to our smaller weekly chart we can see that the Bears are still in the driving seat over the longer term. This will be the case all the time we are below our 38.2 Fibonacci Retracement level at 1065.
Charles Dow defined the basic principles of a Bear market as one that is producing lower peaks and troughs on each swing. The opposite applies in a Bull market. Fibonacci introduced his sequence of numbers to mathematics back in the 1200’s. These numbers appear in all walks of life but have an eerie influence on trading. We use the 38.2 level as an indication of the strength of the correction or indeed if the longer-term trend has changed.
So we are still on target for a further bounce despite the shake out on Friday. Its best not to get married to a position as we now start taking Christmas markets into account.
