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Fibonacci Levels To Watch On The Downside at Trader’s Narrative

After successfully catching a falling knife and riding a “V” shaped rebound, the bulls’ celebration was short lived as the market weakened further to retest the “flash crash” lows. We’ve been chopping around the 1080 area on the S&P 500 with a ferocious battle between the longs and shorts.

I’ve spent considerable time going over the reasons for a short term rebound:

But even so, the market is a fickle mistress and does whatever it wants. Just in case the market doesn’t react to the oversold conditions, we should be making contingency plans for a significant decline. One guide is the Fibonacci levels which proved so prescient to mark the April top.

Here is a short video covering some important Fibonacci levels to watch for on the downside:

fibonacci levels for SPX May 2010

As Adam Hewison explains in the video, based on their proprietary signal, INO is now at a sell signal for the S&P 500 market with the Fibonacci levels as possible target areas. If you want further updates, you can sign up for free at the end of the video.

While a bit scary for anyone long, the 61.8% retracement, corresponds to 878 on the S&P 500. That area, interestingly enough, is also where the index found support after the correction last summer. But it would erase pretty much all the ground that we’ve gained since the October 2008 waterfall decline.

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9 Responses to “Fibonacci Levels To Watch On The Downside”  

  1. 1 GR

    I agree with your tech analysis completely. However, the rally over the last year or so has been one of the least loved rallies in a long time. Very few retail investors participated and a lot of money has been side lined waiting for a “sell-off” or “correction”. What do you think the chances are that we have seen the lows for the foreseeable future?

  2. 2 tee1

    No one, and absolutely nothing can foresee the future! There are only three possible outcomes, a sell-off or a rally or a sideways correction. That is all you need to know. However, midterm congressional elections takes place in November. Until after the elections, the almighty “Invisible Hand” would prevent a free fall.

  3. 3 AB

    tee1, TA isn’t about foreseeing the future, it is about determining a probability based on past market habits. TA traders trade on probability of outcome.

    Actually, the most significant level for the S&P 500 is 1000; one reason is that it is of course psychological (4 digits), but in Fibonacci terms it is 1.) 38.2 retracement for the 2009-2010 bull market; 2.) 38.2 retracement for the 2007-2009 bear market (prices failed at 61.2 which is the 1228 level, as has been pointed out in this blog); 3.) 38.2 retracement for the 1982-2000 bull market (the 666 low in 2009 was at 61.8).

    At the moment, futures acting very well.

  4. 4 Rod

    Look for AUD/JPY around 80, then start fading this bounce, i.e. Short the S&P 500.

    Yeah, no one can see the future, every comment is just an opinion, so take it for what it is.

  5. 5 Gary

    Haven’t you guys seen a bear market rally before? The function of them is to build HOPE in bulls. There’s some bad crap out here on the horizon and ultimately it will be priced into the market. Guys like Richard Russell who have seen bull and bear markets through his study of Dow Theory for the last 50 years don’t issue warnings saying “Sell everything, you won’t recognize this country by the end of the year” unless he is very bearish.

    If you are not old enough to live through a real bear market, then have an open mind to the party being over for most Americans.

  6. 6 vicktor

    I see the index as an big expanding triangle starting and going back to about October 2009, where as recently, the peak in the triangle was this past end of April 2010. Expanding triangles are “generally” a bearish sign. IOW, this up coming rally, will not break above this last peak; the rally could end up as a dead cat bounce. ,

  7. 7 Seller

    Technical Analysis worked–in the past. You need a true market of buyers and sellers and not this hybrid fraudulent mess with numbers coming out of nowhere. The indices are protected, and one can go broke with shorting or options waiting for a natural downturn in the market.

  8. 8 AB

    Technical analysis worked - in the past. And thanks to technical analysis, so did my trades.

  9. 9 vicktor

    Technical Analysis always has several sides to the interpretations. As a further attachment to my previous post, look also at the “possibility” (alert), that the expanding triangle I described previously, notice that the peak back in this recent past April 2010, could turn out to be the Head of a possible build of a big Head & Shoulders. H&S reversal indicates bearish in this case. Since markets always seem to make fools of us, until his formation really develops, if it’s just an Expanding Triangle or a H&S. Until a real trend starts, I’m out. Tough game, at least the track is more fun.

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