Leonardo of Pisa and Wall Street
june 30 2010: Yesterday stock markets went down 5%, and in general returns of stock investments in 2010 now is nil, after a steady decline through the last weeks.Analysts talk about the possibility of a “double dip” with the first dip set in late 2008 when the indexes went down 40%.
The professional accountant Ralph Elliot in the 1930’s proposed a wave theory on how the stock market behave, based on crowd psychology and patterns of price fluctuations he found in trade and other connections.In positive times (“bullet market”) a typical index curve through a defined time span would have 5 up going waves interrupted by a couple of corrections, in bad times (“bear market”) the same pattern would emerge but with a downward curve.He found the magnitude of the individual fluctuations could be forecasted by fractions of numbers form the Fibonacci sequence.
This theory is used by capitalists to decide when to “harvest” investments, and if today a downward trend exist in the markets the plunge yesterday, according to Elliots wave theory, could be the second of five fluctuations ending in a total decline of indexes to a low at the same level as in 2008.
Leonardo of Pisa, or Fibonacci (meaning son of Bonaccio), lived in the years 1170-1240.As child he travelled with his diplomat father in northern Africa, learning mathematics from Muslim educators.When back in Pisa he published the “Liber Abacci” introducing the base 10 numeral system teached by the Muslims, and also describing what is now known as Fibonacci series.
By definition, the first two Fibonacci numbers are 0 and 1, and each subsequent number is the sum of the previous two, as 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610,...The series is found in nature - numbers of separate eyes in spiral arms of insect eyes, seeds in pine cones and sunflowers etc. will be Fibonacci Numbers.
When
taking the ratio of two successive numbers in the series ( like 5/3 or
8/5 ) the found value will more and more approximate the number Φ
(appr. 1.618...).
When
taking the ratio not of neighbouring numbers but Fibonacci numbers one
apart ( like 8/3 or 34/13 ) the value will settle around Φ2
(appr. 2.618...), when taking ratio of Fibonacci numbers two apart (
like 55/13 or 144/34 ) value will go against Φ3
(appr. 4.236...) etc..
The
ratios mentioned above for some unknown reason correspond with Ralph
Elliots waves.Listen here to Melvyn Bragg with guests on Fibonacci
sequences at BBC radio 4
Melvyn Bragg with guests : Fibonacci