Is Vodafone Reversing?

Vodafone’s share price ascended into a significant price barrier on Friday. The market was expected to find a significant degree of resistance from a combination of a descending trendline and a 1.618 Fibonacci extension shown by the descending green line and red horizontal levels respectively in figure 1.

Figure 1

The market did respond as expected with the peak hitting the trendline and the highest close landing on the 1.618 extension. The Fibonacci levels are derived from the price range between the high labelled ‘A’ and the low labelled ‘B’, although the low at B is truncated appropriately to reflect the lowest close value, rather than the lowest low.

Since entering the proximity of this resistance level, the market has reversed over 5% from the high and, crucially, it has fallen below the 1:1 trendline from the Fibonacci fan shown in figure 2.

Figure 2

This is of particular importance because this trendline has been a major source of support that has been driving the stock higher for a lot of this trend. Notice also the strength of the candlestick which broke below the trendline. It is a strong bearish candlestick which actually gapped down, although the gap was subsequently filled. The stock is down 2.3% today. This would be an extremely convincing breakout if it weren’t for the lower than average daily volume today, but that isn’t necessarily bullish.

Notice also the bearish divergence on the RSI that has persisted since August 21st, shown in figure 3.

Figure 3

How far will the market retrace? With this degree of resistance, there’s a good chance that the market will retrace 38.2% or more. Note that the presence of a Fibonacci level coinciding with a Fibonacci/Speed fan trendline has the potential to offer a greater degree of support, such as the example shown in the pink circle where the 0.75 Fan line intersects the 0.618 support level in figure 4.

Figure 4

The 0.618 level is a very strong price barrier and should be considered as such. If the market comes down as far as it there’s a very good chance it will find at least some support from it. Equally, if the market breaks through it to the downside it would be an indication of strength in the bearish move. This is the key level to watch in this chart at the moment. If price comes down to this level watch how the market behaves around it very carefully.

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