Fibonacci Follower – Natural Gas

Leonardo Fibonacci da Pisa, a thirteenth century mathematician, discovered the Fibonacci (pronounced fib-eh-nah-chee) sequence of numbers. The Fibonacci sequence is the series of numbers:1,1,2,3,5,8,13,21,34,55,89,144, and so on to infinity.

Golden Ratio:

After the first several numbers in the sequence, the ratio of any number to the next higher number is approximaterly 0.618 to 1 and to the next lower number is approximately 1.618 to 1. Golden spiral,  which is a type of logarithmic, or equiangular spiral, has no boundaries and is a constant shape in golden ratio. A spiral implies motion –growth and decay, expansion and contraction, and progress and regress.The golden spiral is the quintessential expression of natural growth phenomena found throughout the universe. It covers scales as small as the motion of atomic particles and as large as galaxies. The question is, does movement in stock market, commodity market, or any global market segment operate on the same mathematical basis as so many natural phenomena? To which the answer is YES.  The fact is that waves produce the Fibonacci sequence of numbers, which reveals tht man’s collectively expressed motions are keyed to this mathematical law of nature.

Now,let us jump to the main topic of this article– Natural gas is a fibonacci follower. Close observation states that behaviour of every market is different. If we talk about commodity maket, behaviour of every commodity is different. Gold-Silver behave in a trend channel formand the trend breakout works more into that. Metals follow 18-20 days cycle rotation,oscillator works best in Crude,and similarly,MCX Natural Gas follows the fibonacci retracement and extentions. Following charts suggest that Natural Gas has followed Fibonaccinot once,twice,or thrice, but every time the Golden section appears in that.

Both the charts cited above are daily charts of the MCX NaturalGas. Vertical line is intentionally drawn to segregate every cycle. The following table suggests that every movement on the upside retracesupto the Fibonacci level.

Cycle Period

Uptrend

Correction until

% correction

POINT

20 APR 2014- 14 JUNE 2012

99-155

122

61.8%

A

14 JUNE 2012 -28 AUG 2012

122-183

145

61.8%

B

28 AUG 2012- 15 FEB 2013

145-217

170

61.8%

C

15 FEB 2013- 10 AUG 2013

170-239

196

61.8%

D

10 AUG 2013- 5 NOV 2013

196- 256

213

0.6

E

 

Point F has retracedmore than 61.8% of the previous up move suggesting that the previous spike move was the end of the Motive wave.

All cycles and theirwaves behave in the fractal nature and in Golden ratio too. That means wave strcuture for the larger cycle is the same as for the smaller one. Chart on the the right is the example of the fractal nature of the Elliott wave. Going  through the chart on a bigger time frame of MCX NaturalGas,we can easily find the fractal nature. Movement from 99.50 to 402.70 for Apr 20, 2012-Feb 24, 2014 suggests that the larger time frame Motive wave is complete.

Above is weekly chart of MCX Natural gas. Applying retracement from low of 99.50 to 402.70 levels, (which is made up of all smaller cycles), suggests that prices may take support near 215, i.e. 61.8% retracement levelor we can say pricesmay retrace tomaximum of 76.4% upto levels of 170.

After correcting back to Fibonacci level, prices resume the uptrend,which also gains momentum in relation to the previous cycle. A mathematical relationship exists between a price wave and the waves that follow. The Fibonacci extension tool is drawn over one wave of price to provide estimates on where the next price wave will go. The most watched Fibonacci extension levels are: 61.8%, 100%, 138.2%, 161.8%, 200%, 238.2%, and 261.8%. Applying Fibonacci Extension to the MCX Natural Gas, every Motive wave extends with a relation to the previous cycle.

Cycle Period

Uptrend

Correction until

Extended until

Extension %

POINT

20 APR 2014- 14 JUNE 2012

99-155

122

183

100-123.6%

A

14 JUNE 2012 -28 AUG 2012

122-183

145

217

100-123.6%

B

28 AUG 2012- 15 FEB 2013

145-217

170

238

Almost 100%

C

15 FEB 2013- 10 AUG 2013

170-239

196

257

Almost 100%

D

10 AUG 2013- 5 NOV 2013

196- 256

213

275

100-123.6%

E

 

Let us see the Fibonacci Extention on a larger degree.

Above is the weekly chart of MCX Natural Gas, which suggests that if prices retraceto levels of 215 or below the cycle would be complete. Resuming to make new cycle needs the extention calculation. If prices resume uptrend after correcting,they may extend upto levels of 519, i.e. 100% relative to the previous cycle.

 

Written By:

Vaibhav Chudasama CMT
Commodity Analyst- Retail Research

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

No votes yet.
Please wait...

Leave a Reply

five × five =

"Prevent unauthorized transactions in your trading and demat account- Update your mobile numbers/email IDs with your Stock Broker and Depository Participant. Receive information of your transactions directly from Exchange on your mobile/email at the end of day. Receive alerts on your Registered Mobile for all debits and other important transactions in your demat account directly from CDSL on the same day call us on 02228584545 Email : customerservice@acm.co.in

Copyrights @ 2013 Asit C Mehta Investment Interrmediates Ltd.(ISO 9001:2015 certified company)