Senwes Scenario June / July 2017 - Page 42

•••• CO L U M N Safex Scenarios with Susari SUSARI GELDENHUYS INTRODUCTION South African grain prices are known for being very volatile due to uncertainty about what the future may hold for the grain mar­ ket. Future stock levels, imports, hectares planted and yields are but a few of the factors which created uncertainty (and therefore price volatility) in the market. The recent transition from the old season with low stock levels to the new season with more favourable production expectations is proof of this. These volatile conditions make it very difficult for market participants to make good hedg­ ing and investment decisions. However, there are two general aids in the form of fundamental analysis and technical analysis which will contribute to a higher probability of success when such decisions are considered. Fundamental analysis and the basis of technical analysis were discussed in previous articles. The last few articles focused on deter­ mining support and resistance levels. This article will specifically focus on Fibonacci-numbers as a technical indicator. FIBONACCI – BACKGROUND The unique series of numbers, known as Fibonacci, was discov­ ered in the thirteenth century by the Italian mathematician, Leonardo Pisano. Fibonacci is a series of numbers where the subsequent number is calculated by the sum of the two preceding 40 numbers. In other words: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc. Pisano noticed this series of numbers during research on the expected population growth of rabbits. The unique series of numbers was subsequently con­ tinuously noticed in nature. Some of the most well-known examples include the Nautilus shell (Figure 1), seed-heads (e.g. the sunflower – Figure 2), the natural spiral in the galaxies (Figure 2) and hur­ ricanes (Figure 2), to name but a few. Figure 1: Nautilus Shell SOURCE: Figure 2: Fibonacci in Nature JUN/JUL 2017 • SENWES Scenario FIBONACCI – TECHNICAL ANALYSIS The Fibonacci numbers are used in the financial world as well, more specifically in technical anal­ ysis, where the series is analysed in terms of percentages. The rela­ tionship is represented as follows: 23.6%, 38.2%, 50% 61.8%, 78.6%, 100%. Accordingly this relationship can be used to iden­ tify support and/or resistance levels by linking the Fibonacci- percentages to price movement percentages, particularly in the case of upward or downward trends. Fibonacci can therefore be analysed in two different ways, namely retracements and projec­ tions. Should a significant high and low be determined (as graphically represented in Graph 1), it would be possible to determine various levels for retracements within the high and low. Graph 1 indicates a downward trend (with Point A and Point B being the high and low respectively), with retrace­ ments (Point C – Point E) on the 61.8% Fibonacci-line. Please note that the market found support various times at 38.2% (Point SOURCE: