Application of Fibonacci:
After considerable studied, analysts found a relationship between the price fluctuation and the Golden Section number, and therefore, they uses Fibonacci lines to predict the possible supports and resistance.
To find out the target of a correction, we must first determine the higher and lowest of a certain data range, which is usually an obvious turning points in a major trend. With the highest and the lowest price in place, Fibonacci Retracement system divide the range into Golden Section numbers:
23.6% + 38.2% = 61.8%
38.2% + 61.8% = 100%
100% + 61.8% = 161.8%
100% + 161.8% = 261.8%
If the lowest price is RM1.00 and the highest price is RM2.00, the range will be RM1.00. By applying the Golden Section number, in Fibonacci series, we found the following:
23.6% of RM1.00 = RM 0.236
38.2% of RM1.00= RM 0.382
61.8% of RM1.00= RM 0.618
Practical Examples using Fibonacci:
JAKS
Chart 1: JAKS– 4723, Chart from 13/3/2009 to 22/10/2009.
As shown on chart 1, price of Jaks rebounded on the 17/3/2009, after reaching for its lowest points, and soon, entered an uptrend, which lasted for more than 2 months. On the 12/6/2009, price of JAKS touched its high at RM 1.08, and soon technically corrected, which ended the uptrend. Even though the uptrend has ended, price of JAKS managed to be supported at the RM0.785 Fibonacci line for many times, which is the 38.2% Fibonacci between RM0.31 and RM1.08.
As indicated by A, the RM0.785 Fibonacci retracement supported the price of JAKS for as long as 4 months, and this has proven that it is an important support level, which means, that investors had grown accustomed to this support level, thus a stronger memory at this level.
As indicated by B, JAKS is moving sideways, while consolidating, and therefore, it is usually a good time to monitor the consolidation with the Bollinger Bands. If the Bollinger Bands should re-expand, it would be a signal suggesting an end to the consolidation, and a beginning of a new movement. If price should stay above the Bollinger Middle Band as the Bollinger Bands expands, it would be a bullish biased signal, suggesting more upside movement is likely. But this bullish signal has to be confirmed with the significant increased of volume. Then, investors who buy with the signal, should apply the Bollinger Middle Band as the trailing stop reference, and the next resistance for JAKS is round at RM0.90 Fibonacci retracement line (23.6% Retracement)
On the other hand, if price should stay below the Bollinger Middle Band as the Bollinger Bands expands, it would be a bearish biased signal, suggesting more downside risk is expected. If price should also break below the RM0.785 level, it would be a signal to cut-loss for the next support is expected to be at RM0.695 Fibonacci (50% Retracement line).
Latest Financial Summary as at 31/7/2009：
| PER* | -73.17 times | Dividend Yield | 0.00% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31/10/2008 | 0 sen | 0.00% | 1.31% |
| 31/10/2007 | 0 sen | 0.00% | 4.41% |
| 31/10/2006 | 0 sen | 0.00% | -2.04% |
| 31/10/2005 | 0 sen | 0.00% | 3.85% |
| 31/10/2004 | 0 sen | 0.00% | 14.90% |
Table 1: JAKS Financial Summary
KNM
Chart 2: KNM – 7164, from 13/3/2009 to 22/10/2009.
As shown on chart 2, price of KNM hit its lowest point of 2009 on the 12/3/2009, at RM0.32 level, and it rebounded after that, forming an uptrend which lasted for 3 months, until it hit the RM1.09 level on the 8/6/2009. After hitting RM1.09 level, price of KNM started falling, as technical correction, ended its uptrend. But, it was supported by the RM0.705 level, which is the 50% retracement line between the lowest RM0.32 and the highest RM1.09 level. (Study A).
Although price rebounded, it was still resisted by the RM0.905 level, (23.6% retracement) as indicated by B, and therefore, forming a T1 downtrend line. The T1 downtrend remained intact, until price of KNM rebounded from the RM0.705 Fibonacci Retracement again on the 15/09/2009.
As indicated by C, price of KNM managed to break above the T1 downtrend after its rebound from the RM0.705 level, and later formed an uptrend channel, with T2 being the dynamic support, while T3 being the dynamic resistance. Currently, price of KNM is still staying within the T2 and T3 uptrend channel, this suggests that the current movement of KNM is still positive. As long as price of KNM could remain above T2 line, it is a good idea to hold on to the position for the uptrend remains intact. However, if price should break below the T2 line, it would be a signal suggesting that the T2 uptrend is coming to an end, thus a sign to take profit or to cut loss. Coming Resistance for KNM is seen at RM0.905 Fibonacci retracement line while the support is at RM0.795 Fibonacci Retracement line.
Latest Financial Summary as at 30/6/2009：
| PER | 9.84 times | Dividend Yield | 1.76% |
| Dividend | Dividend Yield | Net Profit Ratio | |
| 31/12/2008 | 1.5 sen | 3.75% | 13.30% |
| 31/12/2007 | 4 sen | 0.63% | 15.31% |
| 31/12/2006 | 5 sen | 0.55% | 14.56% |
| 31/12/2005 | 5 sen | 1.37% | 11.97% |
| 31/12/2004 | 3 sen | 1.05% | 8.41% |
Table 2: KNM Financial Summary.
Conclusion:
Although the Golden Section rule derives from nature law, it is fairly simple when it is applied in Technical analysis to determine the supports and resistance levels. The above two practical examples shown that practical value of Fibonacci in analysis, and it is crucial for investors to properly apply these skills in their analysis.
* Since JAKS last 4 rolling quarters are making losses, it is impossible to calculate the PE. Therefore, in this case, we had chosen to use the Leader PE calculation for this article.
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