Thursday, 26 March 2009

S&P 500 fibonacci grid

The case can be made that the 1000 level on the S&P 500 is a critical upside possible target which would, if achieved, transform the suitable market nomenclature from one of a bear market rally into one of a new and embryonic bull market. Why 1000?
The closing level on October 14th was 998 and can be considered as the market’s judgment on fair value after the major selling climax in mid October which saw the S&P 500 cover more than 20% in just three sessions.
The 1000 level also marked the very firm resistance levels seen during trading on both November 4th and 5th. Since those two sessions the S&P dropped almost 35%
If we take the low of 666 seen on March 6th and apply a fibonacci grid to the appropriate levels 795 is the 38% retracement level, 835 is the 50% level and 875 is the 62% retracement level.
We are currently between the 38% level and the 50% levels but during yesterday’s highly volatile session, the last hour rescue attempt by the bulls succeeded in keeping us above 795.
I would expect us to head back up to the 835 level in the near term and could see some choppy price action between 840 and 860.
One can even imagine that under a longer time frame - during the next few weeks - the 875 could be challenged but what I would find much harder to imagine is that we can slice through 875 without a serious retrenchment.

Needless to say I am not optimistic that we will be seeing the 1000 level any time soon and, as previously indicated, it is more than conceivable that more financial accidents lie ahead over coming months which could put a re-test of the early March low back in play.

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