Wednesday, July 26, 2006

Google and Fibonacci

Here is a daily chart of Google. I last commented on GOOG here.

I'm sure you have heard of the Fibonacci sequence and you may even use it in your own market analyses. I want to bring your attention to a remarkable manifestation of the Fibonacci sequence in GOOG.

As you know the Fibonacci sequence is a sequence of whole numbers that starts out with the numbers 0 , 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, .... and never stops. You can see that each number in the sequence is obtained by adding together the two numbers which preceed it in the seqence. Thus for example, 55 = 34 + 21.

Now take a look at the Google chart. The low trade price for GOOG after its IPO in August 2004 was 95.96. If we add the Fobonacci number 377 to this low trade price we get 472.96. The all time high in GOOG so far has been 475.11. I find that conincidences like this should be watched to see if the Fibonacci numbers are beginning to influence the price pattern.

The thing to observe next is that the following two drops in GOOG were 144 and 90 versus the Fibonacci numbers 144 and 89. The last drop so far has been 50 points and on this basis I think it is reasonable to expect a low near 472 or a bit higher, thus making the third drop nearly 55 points in length.

My guess then is that the next leg up will be a big one and itself will be a Fibonacci number. The conservative candidate is 144 which when added to 372 gives an upside target of 516. A more intriquing possiblity is 233 which gives an upside target of 605. Note that 610 is itself a fibonacci number.

I think GOOG is nearing the end of its sideways movement that started this past January and will soon begin a move to new bull market highs.

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