Technicians ‘Fibonacci Queen’ Carolyn Boroden, Gary Kaltbaum, ‘IBD’ Nail Market Top

Last night on CNBC’s Mad Money, host Jim Cramer spent a good chunk of the program talking about Fibonacci levels in the stock market and how a seeming correct interpretation of them led market technician Carolyn Boroden, who goes by the handle “Fibonacci Queen,” to become bearish in July 2015, as reported by Yahoo Finance.

In mid-December, The Inquisitr reported that Investor’s Business Daily had changed its market outlook to “market in correction” and noted that Gary Kaltbaum, a regular on Fox News and host of the radio program Investor’s Edge, perceived what he described as a “topping pattern” in major market averages.

Through 2015, the U.S. stock market ended up more-or-less flat, after a deep August sell-off and fall rebound that didn’t quite have the staying power to take the major averages to new high ground. Since July, when Fibonacci Queen Boroden first became bearish, markets are down about 10 percent. While he also followed the weakness through the summer, Gary Kaltbaum began noticing weakness in the stock market again in December.

“Stocks fell hard last week and especially on Friday,” Kaltbaum wrote on December 11. “The major indices broke below key support areas… this market is building a very large topping pattern.”

Jim Cramer discussed 'Fibonacci Queen' Carolyn Boroden on last night's 'Mad Money'.

Since Gary Kaltbaum wrote this, the Dow Jones Industrial Average (^DJI) is down close to eight percent. This morning, Dow Jones futures (CBT: YMH16) are down close to another two percent. Carolyn Boroden’s view is reported to be that if support levels in the Standard & Poor’s 500 Index (^GSPC) between 1,847 and 1,857 and between 1,832 from 1,838 do not hold, a “brutal sell-off,” of potentially the same magnitude as the 2008 financial crisis, could be in the cards. Boroden is also reported to see evidence gleaned by applying Fibonacci time analysis that a “healthy bounce” may occur. However, the duration of such a bounce, if it does happen, may be short-lived.

This morning’s action in the S&P futures (CME: ESH16) sees the liquid March contract trading at 1,838.50, down 1.8 percent, which would appear to equate to a cash opening near Boroden’s first set of Fibonacci levels: 1,847 and 1,857.

The numbers in the Fibonacci sequence that Carolyn Boroden employs were identified by Leonardo Bonacci, Fibonacci, in his 1202 work Liber Abaci, and were also reported to have been identified independently by Indian mathematicians centuries earlier. Fibonacci ratios appear in many different places in nature including sea shells, pine cones, and perhaps surprisingly, stock charts.

The Fibonacci levels that technicians like Carolyn Boroden, who is a commodity trading advisor, employ, include 23.6, 38.2, 50.0, 61.8, and 100.0 percent, according to Investopedia. Commercially available, and some free, stock trading and analysis software include Fibonacci-level overlays to help traders quickly identify important levels of support and resistance, as discussed by Investopedia.

IBD is currently watching for a “follow-through day” in major market averages. The publication describes the mechanics of a “follow-through day,” “If you see an up day, simply count it as Day One of a new rally attempt. Then pin your eyes to the daily action of the major indexes, such as the Nasdaq and the S&P 500. As long as there’s no new low, the rally attempt continues, and you look for this key action: If at least one index makes a big gain and volume is higher than the prior day, a follow-through rally confirmation has likely occurred.”

The type of move in the major market averages, a “follow-through day,” that IBD is currently watching for, may occur after bouncing off or near Fibonacci levels. The U.S. market is moving into earnings season, listed with Yahoo Finance; reports that surprise the market have the potential to add to volatility.

Despite this morning’s weakness in the general market, shares of Netflix, Inc. (NASDAQ: NFLX) are rallying, up 3.6 percent in the pre-market, after beating EPS estimates by 250 percent last night. Netflix reported $0.07; the Wall Street analyst consensus was for EPS of $0.02.

[Photo by Spencer Platt/Getty Images]