Past, Present and future of the All Share Index, BASED on Fibonacci Extensions

Ok, are you pessimistic that the ASI is going to further comedown OR you are one of those who are optimistic that it is going to break out and move northwards. Whether you are on either of these view extremes, will no doubt agree that the Colombo Stock Market, as well as the Country leaped into a new phase since 2009. It was a dawn of a new era. The market was in a crazy rally hammering away more than 6000 points in a matter of 26 months Since Dec 2008 to Feb 2011, only to see it nose diving more than 3000 points in the next 15 months. For the next 55 months the market moved within the low of 4700 levels to the high of 7800. A long side way movement within a range of 3100 points.

There are many ways of predicting the future of the market by many techniques, but if you are one of those Traders like me who are not so smart , and still want to know what's going on, can try to understand the Fibonacci Retracements and Extensions and see where we are heading.

Fibonacci Extensions in the way I understood is a tool that you can use to see what and how will the trend will extend. Whether trend is complete or it has more juice to pump it up further. You see a trend, be it  an up trend or a down trend, what the fib ex will do is to show you how the trend is going to behave in the process.

In order to plot the Fib ex you need three points. If you are studying an up move you need the start of the up move, which is called the primary move, then the high of the move and finally the end point of the retracement or pull back. Once you plot these three points by using the Fib ex you will see how far the uptrend move from the end of the said retracement or the pull back. In an up trend it shows you retracement areas based on fibonacci numbers as percentage figures, such as 23.6%(.236), 38.2%(.382), 50%(.5), 61.8%(.618), 76.4%(.764), 100%(1), at 100% you are informed that the extension completed a full length of the primary move along with the retracement. But the extension can move beyond that and hit even 127.2%(1.272) and 161.8% (1.618) as well. Within these % points the Index will see supports and resistances, which would help you to predict levels to which the move could break out or break down.

The starting point of the primary move  in December 2008 was a low of 1484, and the end in Feb 2011 was 7863 points, and the end of the retracement was around 4725 points in June 2012. When you plot the Fib ex by using these three points you'll see that the Support/Resistance lines are around 6237,7169,7922,8676,9608 and 100% completion at 11114 points. We can see that the index broke out of 6237, and 7169 in the resumption of the trend, but trading below 6237 at present. If you take the down side from 2011, and the end of the primary down side move in June 2012, and plot upto the end point of the downside pull back in Jan 2015, the support/resistance points are 6867, 6410, 5670,5213 and 100% being 4474 points. In the down trend retracement we can see that it had come down below 6867,6410 and reversed after falling upto 5800 in March 2016.

At present we can see a side way movement between 5670 and 6410 in the down trend whilst having 6237 as a resistance point coming from the fib ex of the uptrend which is within the down trend support/resistance levels as given above.

To put things simply , the upside trend can hit beyond the all time high of 7800 points and test 7922,8676,9608 and 11114 resistant points. But the downside support areas are 5670, 5213 and 4474 points. However the most important point to remember is that the LONG TERM TREND IS BIASED MORE TO THE UPSIDE THAN THE OPPOSITE.