Fibonacci Voodoo On Gold

Gold prices retraced about 38% of their previous uptrend that started in December of last year and peaked during last July. One could say that gold prices found support at the 38.2% Fibonacci retracement level but that is more like voodoo analysis.

Below is the Gold ETF (GLD) daily chart with Fibonacci retracement levels:

gld_20161006

Yesterday GLD made a low a few ticks below the 38.2% Fibonacci retracement level, which is part of this flagship indicator of classical technical analysis.

There are four major Fibonacci retracement levels from the top of the uptrend down to the 61.8% retracement. The first one of 23.6% was ignored and prices found support near the second at 38.2% yesterday.

There is often high probability that prices will find support near some Fibonacci level in case of corrections, especially when that coincides with a price action support level.

In addition, classical technical analysts point to charts where prices find support near a Fibonacci retracement level and ignore other situations where these levels did not play any role at all.

Sometimes Fibonacci levels work and sometimes they do not. Here is an example from the chart of XLF during the financial crisis downtrend:

xlf_20161006

The first (23.6%) and the second (38.2%) Fibonacci levels were ignored. Prices found temporary support near the 50% and 61.8% levels but that did not help as the plunge continued with great force. What good does it make then to look at these levels? Actually it is a waste of time and maybe of money too. These levels are part of a failed effort going back about 80 years to compress market price action down to a set of patterns and indicators. That effort failed and along the way contributed to one of the largest wealth redistribution in the history of mankind.

If you have any questions or comments, happy to connect on Twitter: @mikeharrisNY

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