Bloomberg News

Fibonacci Shows S&P May Hit 1,020: Technical Analysis

October 04, 2011

(Corrects description in second paragraph of origins of Fibonacci numbers.)

Oct. 4 (Bloomberg) -- The Standard & Poor’s 500 Index may fall another 6.9 percent to as low as 1,020 within the next 12 months, according to analysts who use the Fibonacci system to forecast stock prices.

The benchmark gauge for U.S. equities closed below 1,101.15 yesterday, having lost 38.2 percent of its gain since the beginning of the bull market in March 2009, according to data compiled by Bloomberg. Some traders who use Fibonacci numbers, which were highlighted in the 13th century by mathematician Leonardo of Pisa, believe a decline to the 50 percent level is likely once 38.2 percent is reached.

“The big question now is: do we make this retracement now, or sometime next year?” Dan Wantrobski, the Philadelphia-based director of technical research at Janney Montgomery Scott LLC, wrote in a note today. “It is of course tough to say right now, but with the breaking of the 38.2 percent retracement on the S&P, it would appear that getting there sooner is a distinct possibility.”

Concern that the European debt crisis will drive the global economy into another recession pushed the S&P 500 down 14 percent in the third quarter, the worst performance since 2008. The index would complete a 20 percent decline from its April 29 high, the threshold for a bear market, by closing below 1,090.88 today.

The S&P 500 slipped 3.65 points, or 0.3 percent, to 1,095.58 at 1:19 p.m. in New York.

The midpoint of the S&P 500’s rally from a 12-year low in March 2009 through its 2011 peak, at 1,020.07, is 0.2 percent below last year’s low of 1,022.58, according to Bloomberg data. John Murphy, chief technical analyst at StockCharts.com, said he views that level as the “next major downside target” for the benchmark.

“What the S&P 500 does when it gets there will obviously be very important,” Murphy wrote in a note today.

--Editors: Stephen Kleege, Michael P. Regan

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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