As far as anyone has been able to determine the recent excitement on the NYSE which caused a massive spike in demand for adult-size Pampers (that’s what saved Procter & Gamble’s bacon), was not caused by Citibank, or an errant trader pressing a “B” instead of an “M”, and it certainly wasn’t an “Act of Terror”. So what then?
Interesting thought I had about 1.00 EST after I watched a very nice little video from Market Club: http://broadcast.ino.com/education/dow54aff/%20?campaignid=3
There were explaining how they had “pulled the trigger” on the DOW on 2nd May, and they were (then) advising their readers to “keep their powder dry”, because it’s hard to know whether the retracement down would bounce at the 38.2% or the 50% or the 61.8% level. And I thought to myself…”Mm that’s interesting, seeing as many traders believe in Fibonacci to a greater or lesser extent, I wonder if now the Fibonacci numbers which are supposed to be a magic formula for where the herd will jump to next, might be leading the market”.
How about this for a theory?
How about if a small proportion of traders set up their algorithms to pull the trigger if the 38.2% mark was breached (10,716)? And a few more had set them up to trigger at 50% (10,547)? And a lot more had the panic button set at 61.8% (10,378)?
Market mass hysteria starts when a belief system becomes self-reinforcing, like when everyone says the place to be is in the starboard side of the boat, because it’s going to tilt to starboard.
And WOW – it was true! Which proves that if you didn’t take the Fibonacci theory seriously up to now, it’s about time you did. When even the shoe-shine boys can tell you where the 61.8% retracement is, it’s time to take-care.
