Warren Buffett + Closing The Gap + 21% Retracement = The Buffett Retracement Gap
In early 1987, Warren Buffett wrote to Berkshire Hathaway shareholders about what to do in the face of an epidemic.
This was, of course, way before the outbreak of the novel coronavirus that’s causing worldwide concerns today. It was even before the avian flu, Ebola, SARS, or MERS made the news.
But more than 30 years ago, Buffett addressed two “super-contagious diseases.” He told readers that there are “occasional outbreaks” of these diseases and that they will “forever occur.” Buffett admitted, though, that “the timing of these epidemics will be unpredictable,” cautioning to “never try to anticipate the arrival or departure of either disease.”
What were these two diseases? “Fear and greed” among investors. Buffett stated that his goal to deal with these “epidemics” was “to be fearful when others are greedy and to be greedy only when others are fearful.”
There’s no question that plenty of investors are fearful right now. The so-called fear index — the CBOE Volatility Index (VIX) — has skyrocketed over the past couple of weeks. When the VIX goes up a lot, it’s a clear sign that many investors are scared. If you think that Warren Buffett was right in 1987, though, that means it’s time to be greedy.
Buffett Current Time: BE GREEDY
Closing The Gap
As you can see in the chart below, we are near closing the final GAP before return of a new upward push. Once the gap closes (yellow chart markers), we can start a new bullish momentum cycle. We are very close to closing the gap and when it does close, we have another notch in our belts for a new bullish trend to begin.
23% Golden Ratio Retracement
Retracements are temporary price reversals that take place within a larger trend. The key here is that these price reversals are temporary and do not indicate a change in the larger trend.
You may wonder where these numbers come from, though. They are based on something called the Golden Ratio. If you start a sequence of numbers with zero and one, and then keep adding the prior two numbers, you end up with a number string like this: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 … with the string continuing on indefinitely. The Fibonacci retracement levels are all derived from this number string.
Interestingly, the Golden Ratio of 0.618 or 1.618 is found in sunflowers, galaxy formations, shells, historical artifacts, architecture, and the growth of the stock market.
Once the Gap is closed and the Fibonacci level is reached you should be looking closely at your Daily trade signal charts. If you want to be a little more patient and lower your risk level, then wait for the Weekly trade signal charts match the Daily. Ultimately, when the Monthly turns, your investments should be growing safely and rapidly after avoiding most of the decline.