range, we also have a partial solution to the problem of the idealized growth

wave. That is, we can specify the natural limits for the growth wave over a
period of time (e.g., a day’s trading period) without making any assumptions
about the time it would take to realize this growth target. The wave might be
completed in a few minutes, or take several hours, or may not be achieved at all
during a day’s trading. As we have seen, the idealized or natural Fibonacci
growth wave (Figure 8c) consists of three waves defined by the division of the
growth limit into the Fibonacci ratios of .38 and .62. And, since these nominal
sub-waves crest at these ratio points, it follows that these ratio points are
important price points in the day’s daily trading range. Figure 13, illustrates
these range points for an upcoming day’s trading before trading begins.
If we consider the Dow’s closing price on June 16, 1998, at 8,665.29, we can
specify before trading begins what the important price ranges are. These are
shown in Table 6.

TABLE 6. Range Value Calculation Based on Fibonacci

Growth Factors

Close Growth Factor Close – Factor Close + Factor

Range 1 8,665.29 .00382 33.10 8,632,19 8698.39

Range 2 8,665.29 .00618 53.55 8,611,74 8,718.84
Range 3 8,665.29 .01618 140.21 8,525.08 8,805.50

We have no way of knowing whether prices are going to hit any of these
range limits or which ones or at what times. But knowing that each range limit is
a point of price “exhaustion” and is likely to be followed by some period of
countertrend (see Figure 8c), we have a basis for action. Let’s say that prices
move up and the trader has a long position. From the knowledge of these range
limits we have clear instructions to sell at 8,698.39, 8,718.84 and 8,805.50.
This is one answer, then, to the question raised earlier (p. 49): is there a
way to specify price potential targets in terms of specific prices. From the close of
a previous day, we can readily generate specific target prices for the following

61
day’s trading with clear instructions as to what action to take should those prices
occur.43
If the trader sells at the first action point, of course, there follows the
question of how to re-enter the trend once prices begin to move upward again
(or if prices keep moving up without a countertrend). As a general solution to the
problem of re-entry, we can see from the nominal growth wave in Figure 8c, that
the price level of the “corrective” wave can be calculated once the value of the
first wave is known. Ideally, the trader would re-enter the trade at the trough of
the corrective wave. How to use these price levels in actual trading will be
illustrated in detail further on. At this point, it is important for the trader to have
firmly in mind that during any day’s trading in any market, there will be natural
price points at which the trader can be prepared in advance to take action.
Keep in mind that we are seeking specific price targets to use in
conjunction with the 3PB method and Fibonacci ordinal price potential points.
For example, suppose a 3PB trend has achieved 11 new highs, and the trader is
waiting to exit the position at 13 new highs, but prices have just hit a Range-3
price level. This would serve as an instruction to the trader to exit the position at
that point, or to raise the stop very close as prices have reached a natural
exhaustion point. As you can see this adds an important price-specific instruction
to our objective “action instruction set” we are developing.
Clearly, knowledge of price potential range adds additional power to the
methods already developed because it provides additional basis for action in
relation to specific prices when and if they occur in the market. The trader will be
well advised always to be aware of the range limits for today’s trading generated
from yesterday’s close. These range limits remain in effect during the entire day’s
trading activity. As we shall, a price point that early in a day’s trading is an
exhaustion point (resistance), and therefore a basis for trade exit, may become a
new growth point (support), and therefore a basis for trade entry later in the day.
As important as these range limits are, they are clearly static price levels
generated from a singular price point (the prior day’s close). For this reason, they
are not influenced in any way by what actually happens in today’s trading. These
range limits do not change until after the close of today’s trading and thus,
during the day, they are not dynamically effected by today’s price behavior. This
does not lessen their significance, but it does raise a new question: is there a way
to apply the method of price potential targets during the trading day in relation
actual market behavior?

43
It will be helpful to be reminded again that this is a general method applicable to any market.
We shall see shortly how to apply these range limits to any stock or index or any other market in any price
range.

62
 The answer is a satisfying yes.
To develop the full set of techniques required to do this requires the
exploration of several different issues. I will provide sufficient background here
to enable the trader to appreciate the nature of the issues involved in specifying
price behavior (in both degree and time), although more complete consideration
of these issues must await Part 2. The methods that follow from what we are
about to explore will become an important part of the trader’s “tool kit.” For this
reason, I suggest working through the following sections slowly and carefully.
FIBONACCI TARGET CALCULATORS. We have seen in the previous section,
that the most important price before today’s trading is yesterday’s close. It is the
most important price because it is the net result of all trading for the day. This
singular “seed” price has the potential to grow and we expect this price to grow
in relation to the Fibonacci growth function. Keeping in mind that we are seeking
“direction neutral” methods, growth can be projected in both a positive and
negative direction. This is in keeping with the simple observation that prices go
down as well as up. From yesterday’s close we can project “growth limits” or
ranges within which we would expect prices to move. As you have seen (see
Figure 13), these ranges remain “fixed” throughout the trading day and do not
change until the close, at which time a new set of ranges is calculated for the
following day’s trading.

In addition to the close, as we have seen in the discussion of “important

price” (p.56), the crest and trough of any trend is also an important price. Quite
obviously, up trends begin at the trough of a downtrend, and down trends begin
at the crest of up trends. During the course of any day’s trading, there will be a
point that is the high of the day and a point that is the low of the day.44 As we
saw in the definition of the candlestick, these are important prices also. And on a
daily basis, there is only one high and one low price. However, as the trading
interval becomes smaller in terms of time (30 minutes, 13 minutes, 3 minutes, 1
minute), the number of high and low points will increase. Will price specific
targets projected within these smaller time frames be useful to the trader?

Earlier, we saw that the application of the general Fibonacci growth factor
(1.618) leads to extremely large growth targets. For example, at the then all-time

44
The “seed” of the counter trend begins to “bloom” just at the point of maximum growth of the
initial trend. This raises the intriguing question of whether such “moments” can be identified in any time
frame. The Fibonacci-based estimate of price potential exhaustion is one attempt to identify trend change
points in any time frame. Many more elements will enter into this attempt and will be introduced in due
course. The reader is advised again to remember that everything being described here, while being
illustrated with Dow prices, applies equally well to stocks, indexes, or any other market.

63
high of the Dow on July 20, 1998, at 9,367.97, this growth factor would have
projected a decline to –15,157.38. This is a meaningless projection; and its
opposite, 15,157.38, while at some point in the future being a meaningful target,
in any presently useful time frame it was equally meaningless. These
observations were the basis for introducing the idea of “scaling” the growth
factor. Using the first scaled value (1.618/10 = .1618),45 produced the downward
projection pictured in Figure 11c. As we saw earlier (p. 56), the price projection
based on the .1618 growth factor underestimated the actual fall in the Dow. This
projection was based on a singular point (that all-time high) and was limited to a
single growth factor (.1618). Clearly, the growth factor of .1618 is limited to
declines or advances of 16.18% unless there is some way to project multiple
growth targets.

One way to approach this would be to adopt a “re-iteration” method. That

is, once the full target growth has been achieved (in this case a Dow price of
7,852.23), a second growth target is established (in this case a Dow price of
6,336.49)46 . We shall see that reiterative growth functions of this kind can be very
useful. However, as will be fully developed in Part 2, a more useful approach is
available. To illustrate this, additional groundwork is necessary.

By scaling the growth factor to .01618, we have seen that we can set
meaningful daily growth targets. These targets are then dynamically linked to
the daily close of the market. There is a new growth target every day. So, in
addition to the original growth target (based on the factor .1618), we have a new
.01618 growth target each day. 47

Since we have just seen that counter trends begin at highs or lows (not
closes), it follows that growth targets need, as well, to be projected from market
highs and lows. While it is always clear in retrospect when there is a well-

45
The scaling factor of 10 is not the only possible scaling factor. We won’t go into this difficult
topic here, but just note it for reference. In later sections this question will be considered in depth.
46
As we shall see, there are different methods of re-iterative growth. In the case above, the initial
growth factor (-1,515.74) becomes 2*1,515.74 in the second iteration. An alternate approach would be to
calculate a new .1618 growth target when the first growth target is hit at 7,852.23. In this case, the second
iteration would be a target price of 6,581.74. What is important at this point, is for the trader to think about
these ideas and how they might be implemented. The specific procedures recommended will be settled on a
bit further on.
47
Later, a modification of a Larry Williams’ trading method will be introduced based on this daily
growth principle. The basic idea is to be always in the market always in the direction of prices hitting the
daily growth target. So, for example, if the Dow hits a price equivalent to .01618 points down from the
prior close, one would be short—and remain short until a counter signal is given, i.e., a .01618 growth spurt
in the opposite direction. The short would be closed out and one would reverse to the long side and so on in
perpetuity.

64
defined market high or market low, at any particularly time how would we use
such projections in today’s trading?

M ARKET S TRUCTURE. Here we need to introduce the idea of market structure. 48

Market structure is a pattern of three consecutive price ranges with an alternating49
character. There are two types: a market structure high and a market structure low. In a
market structure high, the focus is on the high price of each of the successive price ranges
and where the pattern is (1) a high price, (2) a higher price, and (3) a lower high price.
Likewise, in a market structure low, the focus is on the low price of each successive price
range and where the pattern is (1) a low price, (2) a lower price, and (3) a higher low
price. These patterns are illustrated in Figure 14.

48
I was first introduced to the idea of “market structure” in Larry Williams’ The Definitive Guide
to Futures Trading ( Volume 1). New York: Windsor Books, 1988. While Larry Williams describes his use
of market structure as a simple trading system, he does not elaborate the idea more generally or specifically
in relation to intra-day prices. This will be my focus here.
49
In Part 2 and Part 4, the crucial principle of alternation will be elaborated fully. For now, note
that market dynamics are fundamentally the dynamics of alternation: highs followed by lows followed by
highs, etc. This principle was alluded to above as well in the idea that at the very crest of a high point is
where the next low point begins. Notice also the Fibonacci character (3) of the market structure pattern and
how the market structure pattern embodies both the principle of similarity and the principle of alternation:
same, same, different. The interaction of these fundamental principles will be explored in depth in later
sections.

65
 Let’s examine this pattern in more detail. In a market structure high
pattern, the first price range indicates that prices have moved higher. The trend
is up. The second price range moves higher still. Again, the trend continues up.
The third price range fails to make a new high. For the moment (whatever the
time frame), the trend is stopped. Clearly, any high of a trend will be
characterized by this market structure high pattern. In the market structure low
pattern, prices are falling and this is reflected in the first price range. In the
second price range prices fall further—the trend is still down. In the third price
range, there is a failure to make a new low. For the moment, the downtrend is
stopped. Any low of a trend will be characterized by this market structure low
pattern. Figure 15 repeats Figure 3 with the market structure patterns marked.

66
 Figure 15. Market structure highs (^) and market structure lows (v) for
the Dow data of Figure 1.

We shall have occasion to study market structure patterns in more detail

further on. For now, observe that in the rising trend from the beginning of the
chart to the peak, there is a rising pattern of higher market structure lows and
higher market structure highs. Notice too, that the major down move from the
peak in prices must first violate a prior market structure low. Clearly, the
violation of a prior market structure low is an important event. Notice too that
once a lower market structure high is in place, we have a market structure
formation of high-higher-lower high formed by market structures themselves.
This “higher order” market structure carries even more strongly the significance
of the first-order market structure pattern: the potential for trend reversal.

Generally, then, the significance of the market structure pattern is that it

marks the potential for trend reversal. It follows that it would be from market

67
structure price points that we would be interested in calculating price potential
targets. Before developing the procedures for calculating price targets, we need
to call attention to an important concept created by the use of market structure
price points, a concept that contributes to a special type of price target.

THE FIBONACCI PIVOT POINTS. The concept of market structure range leads
naturally to consideration of Fibonacci pivot points. The general idea is this: the
range between a market structure low and a market structure high can be treated
as a whole unit of trend. Figure 16a illustrates this idea. The distance between the
market structure low at point L1 and H1 is one unit of up trend. Before a market
structure low occurs, this range is extended by a second market structure high at
H1’. In this case we define trend as the movement between market structure
points in alternation. Thus, the up trend L1-H1’ is followed in turn by down trend
H1’ to L2, followed in turn by up trend L2-H3.

Since each one of these “units” of trend is a range, the range can be treated
as a unity, as a whole. And, as we have seen earlier, whenever we have a unity,
we can meaningfully divide that whole into its component Fibonacci ratios of .38
and .62. Figure 16b illustrates the division of the up trend L1-H1’ into its
Fibonacci ratios. Thus, any up trend unit (in any market, in any time frame) will
generate, via its Fibonacci division of range, target support points for the
subsequent down trend unit. Likewise, the down trend unit will generate target
resistance points for the subsequent up trend unit. Fibonacci pivot points can then
be generalized to refer to counter trend reversal points.

68
69
 How prices behave at these Fibonacci ratio points of support and
resistance will be of enormous interest to the trader. For example, in an up trend
we might consider a trend “strong” if the counter-trend movements correct only
to the .62 pivot point or less; and, in the next market structure move up, move
easily through the .38 and .62 resistance points of the counter trend. Whenever
prices begin to fall below the .62 pivot in a counter trend move, or get stopped by
the .38 or .62 resistance pivots in the subsequent up move, the trader will begin
to suspect a weakening of the up trend.

While pivot point values could be calculated for each trend unit—and, in
fact, it is extremely instructive to do so—in practice, more attention is likely to be
paid to “important” pivot points. The major pivot points of interest are:

(1) the pivot points of the major trading range (MTR) defined as the pivot
points of the range between the highest and lowest market structure
points in the last 55days; 50
(2) the pivot points of the current trading range (CTR) defined as the range
between the most recent highest and lowest fully-formed market
structure points;
(3) the pivot points of the daily trading range (DTR) defined as the range
between the highest and lowest market structure points in a day’s
trading.

We will focus more fully on pivot point analysis further on. Enough of the
basic idea has been introduced for our purpose here.

Let’s review where we are and what we are looking for. We have seen that
the 3PB method gives us a trend identifying method. By combining the 3PB
method with the ordinal Fibonacci number method for exiting and re-entering
trades, the extent of trend capture can be improved. To this combination we
added the concept and method of Fibonacci growth patterns which led to the
idea of price projection targets (trend exhaustion points) and the corollary ideas

50
The use of “55” in this definition is arbitrary. It is, of course, a Fibonacci number. It is
nominally 11 trading weeks. The trader will be familiar with the “10 week” moving average (50 days) and
the 200 day moving average (4*10 weeks), an approximation of the number of trading days in a calendar
year. From a Fibonacci perspective, the year naturally falls into 13 trading week portions (quarters), just as
the year itself falls naturally into 13 moon months. Obviously, there is a considerable degree of
arbitrariness in what “periods” one uses for temporal definitions. This whole matter of calendar, time, and
trading intervals will be explored in depth in Parts 2 and 4.

70
of Fibonacci-based pivot point targets (counter-trend reversal points). We have
expanded the idea of calculating growth targets not only from the close of the
previous day’s trading, but from “important” market structure points as well.
We are looking for points at which to expect reversals, and to use those points for
projecting growth targets which in turn will be potential reversal points. In all
cases, we are looking for price-specific projections.

GROWTH UNITS. When a directional trend completes itself, the growth

potential of the alternate trend is hidden “seed-like” in the market structure price
that marks the full extent of the trend. It follows that we would like to be able to
calculate this growth potential in some meaningful scale relating to the time
frame of interest to the active trader. We have already considered a basic
example of this in the previous discussion. The Fibonacci growth factor (1.618…),
scaled by arbitrary factors of 10 (.1618; .01618) has given us the means to use the
Fibonacci growth factor to “calculate” potential growth limits within the intra-
day time frame of major interest to the active trader. In the previous example, all
growth projections were based on the prior close. This produced the useful idea
of expected trading range limits for the following day’s trading. Following the
discussion of the concept of market structure, it follows that the trader will be
interested in calculating the growth potential from any market structure point.
The more significant the market-structure point, the more meaningful will the
calculations of growth potential become. Thus, a market structure point that is the
low of day is likely to be “more important” than a market structure point in the
middle of a day’s range.51

A limitation of the growth factor as we saw earlier, was how to project

further growth after the .01618 target has been reached. As noted, one procedure
would be to use only this growth factor but in some re-iterative manner. One
example of such a re-iterative calculator is shown in Table 7. From the peak in
the Dow at 9,367.97, the “growth calculator” projects targets down in constant
incremental amounts corresponding to .01618*9,367.97, or 151.57 points. I have
carried the projections to a limit of 13 “units” of growth in the projected decline.
Alongside the projected Dow price, are the date and the “nearest” low point
corresponding to the projected value.

51
The trader is reminded here, that targets are not predictions. The purpose of any Fibonacci
growth calculation is to determine “action” points at which the trader is alerted to possible price reversal.

71
 TABLE 7. Unit Growth Calculator Based on Fibonacci Growth Factor
Scaled to .01618 for Dow from high on7/21/98 to Low on 9/1/98

Ordinal Growth Growth Dow Dow Difference On this

Value Factor Amount Target Actual Date…
1 0.01618 151.57 9216.40 9173.97 +42.43 7/21/98
2 0.03236 303.15 9064.82 9075.10 -10.28 7/22/98
3 0.04854 454.72 8913.25 8932.98 -19.73 7/23/98
4 0.06472 606.30 8761.67 8785.97 -24.30 8/3/98
5 0.08090 757.87 8610.10
6 0.09708 909.44 8458.53 8487.31 -28.78 8/4/98
7 0.11326 1061.02 8306.95 8316.67 -9.72 8/11/98
8 0.12944 1212.59 8155.38 8164.19 -8.81 8/27/98
9 0.14562 1364.16 8003.81 8011.52 -7.71 8/28/98
10 0.16180 1515.74 7852.23
11 0.17798 1667.31 7700.66
12 0.19416 1818.89 7549.08 7539.07 +10.01 8/31/98
13 0.21034 1970.46 7397.51 7400.30 -2.79 9/1/98

It is rather striking how close the projections are to the actual lows. On average,
these projections are within 2/10 of 1% of the actual lows. On days, when more than 1
unit of growth was achieved within a single day (from 4-6 and 9-12), the low still settled
close to the next projected value. Interestingly, the actual low of the Dow occurred at the
13th unit of growth. We have seen before that the ordinal values that are themselves
Fibonacci numbers may take on special significance. For example, note that in the
decline from the peak, the 3rd projected Dow point was hit in three consecutive days. It
took an additional 6 trading days before the 4th projected Dow point was reached. Earlier,
in relation to the ordinal Fibonacci points in a 3PB series (3-5-8-13-21…), we saw that
the 3rd point was the first exit point. So, here too, we have the incipient idea, that when
prices reach an ordinal Fibonacci specific target price level, an exhaustion point has been
reached.

This would seem to be the sort of additional objective signal we have been looking
for to add to the set of methods already developed. That is, not only a method of
specifying specific target prices, but a method of specifying which of those target prices
are likely to be most “most important.”

As a further example of this procedure, let’s examine the upside projections in the
Dow from this market structure low point of 7400.30 reached on September 1, 1998.

72
TABLE 8. Unit-Growth Calculator Based on Fibonacci
Growth Factor Scaled to .01618 for Dow from
The low on 9/1/98 through 7/6/99

73
 Table 8 pictures the same unit growth projections as Table 7, only this time in the
upward direction. The tabulated values have been extended from 13 units of growth to
34.52

Table 7 spans nearly a year of trading. In that time, the Dow has risen from a low at
7400.30 on 9/1/98 to a peak at 11,236,76 on 7/6/99. This constitutes a rise of 51.84% in
less than 1 year, remarkable growth by any standard. It should be noticed that this rise is
approaching a full Fibonacci growth unit (1.618), projecting to a level of 11,973.69. This
price level would be a natural exhaustion point. From that point, one would expect a
corrective wave back to a Fibonacci pivot point (.62 or .38 of the range 7400.30-
11,973.69).

While the Dow is approaching this full Fibonacci price potential target (11,973.69),
Table 8 reveals it is also approaching the 34th price potential target of the scaled
Fibonacci growth unit (.01618) at 11,471.35. We may think of the Dow “converging” on
the price zone between 11,471.35-11,973.69. This idea of convergence will become
particularly important further on. For now, it will suffice to simply generalize that the
more factors converging at “important price points,” the more likely it is that an
important reversal is at hand.

Table 8 also illustrates the value of these projected price-points in relation to the
methods we have been developing. For example, following the principle of selling on the
Fibonacci ordinal targets at 3-5-8-21-34, and re-entering the trend on a new high, and
assuming that the Dow reaches Target 34, this procedure would net 3,352.57 of the full
trend of 4071.05, or 82.35%.

What Tables 7 and 8 do not illustrate, are the several counter-trend moves that
occurred over the course of the trading periods involved. In effect, the unit growth
calculator by itself is projecting only sequential gains of constant size (151.57 points in
Table 7 and 119.74 points in Table 8). It is as if each unit of growth was added onto the
“peak” of each growth wave. In spite of the accuracy of the low points in Tables 7 and 8,
we need to consider again the nature of a growth wave. Figure 17, shows the natural
growth wave projected from the closing price of the Dow on June 16, 1998 at 8,665.29.
This figure shows the projected heights of the three “growth” waves, and the expected

52
As you can see, in contrast to the larger Fibonacci values (1.618, .1618), the Dow scale of
.01618, which we have seen is meaningful on a daily basis, can be used to project meaningful price
corrections without generating meaningless negative projections. Thus, 3 units correspond to a correction
of 4.85%, 5 units to 8.1%, 8 units to 12.94%, and 13 units to 21.03%. Notice also that the percentages
themselves round off to Fibonacci numbers!

74
depths of the two “decay” waves. Counting the entire sequence results in 8 waves and
corresponds to the so-called Elliot Wave principle. 53

We know that the peak of our expected growth wave is equal to .001618 * 8,665.29,
or 8,805.49. We know as well, that this growth function necessarily had to go through the

53

75
Figure 17. Fibonacci growth waves projected from Dow close at 8,665.29 on
June 16, 1998.

76
 “unity” point (.00100*8,665.29 or 8,751.94), as well as the Fibonacci divisions of
this unity at .00382 (8,698.39) and .00618 (8,718.84). These growth points do not
correspond to a straight line, but as we shall see in later sections, are segments along the
Fibonacci growth spiral. Likewise, the decline will inscribe an arc that is also a segment
of a spiral function.

It follows, then, that instead of growth units incrementally stacked atop the peak of
each compete growth wave, the next growth wave is more logically calculated from the
end point of the growth cycle, that is, at the trough of wave 8 at 8,718.91. Once again, it
needs to be noted that this entire wave cycle is generated from a single price point. If this
wave were to issue “instructions” it might be to buy at 8,665.29, sell at 8,805.49 and to
buy again at 8,718.91, all based on that first price point. In fact, the next market structure
high was 8,892.48 and the subsequent market structure low was at 8,684.22.

In the idealized wave cycle illustrated in Figure 18, it is clear that the through of
wave 6 corresponds precisely to the unit value of the wave. Additionally, you can see that
the terminal point of the wave cycle (the trough at wave 8) corresponds precisely to the
amplitude of wave 3. You can see that the growth cycle wave is not corrected completely,
that there is always a “residual” remaining after the completion of wave 8. And, the
residual is equal to the Fibonacci growth factor (in this case, scaled to .00618). The
accumulation of these residuals over time will constitute the essence of a “bull” market,
that is, the general tendency for markets to rise over extended periods of time. So, the
idealized wave in Figure 18, may be described as a “bull” pattern: 3 waves up, 2 waves
down, leaving a residual gain that in successive growth units will accumulate and yield
the incremental Fibonacci growth curve of market prices.

Figure 19, is the mirror image of Figure 18 and projects growth downward from a
singular point. As you can see, there are three waves down and two waves up, leaving a
residual decrement in general price level. The accumulation of these residual decrements
over time will constitute the essence of a “bear” market, that is, the general tendency for
markets to fall over extended periods of time. From the perspective of the idealized price
patterns, you can see that a bear market (3 waves down) is different from a correction in a
bull market (2 waves down). We shall have occasion to explore the ramifications of this
difference more fully further on. .

The idealized wave cycle illustrated in Figure 18 is generated from a single and
static price point. Even so, it is remarkable how Fibonacci price projection points
generated from such single points in time correspond so well to subsequent market
turning points. In terms of price projection from singularly important price points (a last
major low, a last major high, for example) we want to know these price projections as
potential turning points—particularly at those ordinal price projections that themselves

77
Figure 19. The Fibonacci growth wave (“down”) from the close at 8,665.29
on June 16, 1998.

78
 correspond to Fibonacci values. So the price projection calculator developed in
Table 7 and extended in Table 8 remains of interest, as will the development of any
additional calculator incorporating Fibonacci principles of generation. As we shall see
there are a number of possible Fibonacci-based calculators that will be interest.

Table 8 also illustrates the value of these projected price points in relation to the
methods we have been developing. For example, following the principle of selling on the
Fibonacci ordinal targets at 3-5-8-21-34, and re-entering the trend on a new high, and
assuming that the Dow reaches Target 34, this procedure would net 3,352.57 of the full
trend of 4071.05, or 82.35%.

What Tables 7 and 8 do not illustrate, are the several counter-trend moves that
occurred over the course of the trading periods involved. In effect, the unit growth
calculator by itself is projecting only sequential gains of constant size (151.57 points in
Table 7 and 119.74 points in Table 8). It is as if each unit of growth was added onto the
“peak” of each growth wave. In spite of the accuracy of the low points in Tables 7 and 8,
we need to consider again the nature of a growth wave. Figure 17, shows the natural
growth wave projected from the closing price of the Dow on June 16, 1998 at 8,665.29.
This figure shows the projected heights of the three “growth” waves, and the expected
depths of the two “decay” waves. Counting the entire sequence results in 8 waves and
corresponds to the so-called Elliot Wave principle. 54

We know that the peak of our expected growth wave is equal to .001618 * 8,665.29,
or 8,805.49. We know as well, that this growth function necessarily had to go through the
“unity” point (.00100*8,665.29 or 8,751.94), as well as the Fibonacci divisions of this
unity at .00382 (8,698.39) and .00618 (8,718.84). These growth points do not correspond
to a straight line, but as we shall see in later sections, are segments along the Fibonacci
growth spiral. Likewise, the decline will inscribe an arc that is also a segment of a spiral
function.

It follows, then, that instead of growth units incrementally stacked atop the peak of
each compete growth wave, the next growth wave is more logically calculated from the
end point of the growth cycle, that is, at the trough of wave 8 at 8,718.91. Once again, it
needs to be noted that this entire wave cycle is generated from a single price point. If this
wave were to issue “instructions” it might be to buy at 8,665.29, sell at 8,805.49 and to
buy again at 8,718.91, all based on that first price point. In fact, the next market structure
high was 8,892.48 and the subsequent market structure low was at 8,684.22.

In the idealized wave cycle illustrated in Figure 18, it is clear that the through of
wave 6 corresponds precisely to the unit value of the wave. Additionally, you can see that
the terminal point of the wave cycle (the trough at wave 8) corresponds precisely to the
amplitude of wave 3. You can see that the growth cycle wave is not corrected completely,

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that there is always a “residual” remaining after the completion of wave 8. And, the
residual is equal to the Fibonacci growth factor (in this case, scaled to .00618). The
accumulation of these residuals over time will constitute the essence of a “bull” market,
that is, the general tendency for markets to rise over extended periods of time. So, the
idealized wave in Figure 18, may be described as a “bull” pattern: 3 waves up, 2 waves
down, leaving a residual gain that in successive growth units will accumulate and yield
the incremental Fibonacci growth curve of market prices.

Figure 19, is the mirror image of Figure 18 and projects growth downward from a
singular point. As you can see, there are three waves down and two waves up, leaving a
residual decrement in general price level. The accumulation of these residual decrements
over time will constitute the essence of a “bear” market, that is, the general tendency for
markets to fall over extended periods of time. From the perspective of the idealized price
patterns, you can see that a bear market (3 waves down) is different from a correction in a
bull market (2 waves down). We shall have occasion to explore the ramifications of this
difference more fully further on. .

The idealized wave cycle illustrated in Figure 18 is generated from a single and
static price point. Even so, it is remarkable how Fibonacci price projection points
generated from such single points in time correspond so well to subsequent market
turning points. In terms of price projection from singularly important price points (a last
major low, a last major high, for example) we want to know these price projections as
potential turning points—particularly at those ordinal price projections that themselves
correspond to Fibonacci values. So the price projection calculator developed in Table 7
and extended in Table 8 remains of interest, as will the development of any additional
calculator incorporating Fibonacci principles of generation. As we shall see there are a
number of possible Fibonacci-based calculators that will be interest.

[To be continued in next update….]

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