Long-Term Check-up

With the S&P 500 interacting with another key overhead price level, let’s take a moment to pull the perspective back to update the long-term (from 2007’s peak) Fibonacci “Bull Market” Retracement Grid.

Here’s the clean picture on the Weekly Perspective:

 

 

The Long-Term Fibonacci Retracement grid begins at the 2007 market peak (1,576) and ends at the 2009 March low (666).

The Retracement Grid measures the percentage price has retraced higher in the context of this 1,576 to 666 movement.

For example, a recovery all the way back to 1,576 would be a full 100% “retracement,” while the other levels (38.2%, 61.8% and the lesser known 78.6%) are your classic Fibonacci Retracement Levels.

The main idea at the moment is that the lesser known 78.6% Fibonacci Retracement line rests just above us now at 1,382, which is also just above the May 2011 peak of 1,370 (another price area we’re all watching closely).

Let’s drop to the Daily Chart to see how the market has reacted to prior Fibonacci Retracements:

 

Click for full-size image.

I highlighted areas of prior short-term reversals from (or very near) the popular Fibonacci Reference levels.

Interestingly enough, the April 2010 market peak occurred very similarly to the May 2011 peak – falling a few points shy of a full touch of the higher Fibonacci line.

In the case of 2010, price came back to the 1,228 (61.8%) ‘big’ retracement in November, stalled, and then broke strongly higher on its journey to the next level.

That’s the basic way to view a Fibonacci Grid like this:

know what areas are important and then should price break firmly through one of these key levels, then one can expect a continuation movement to the NEXT important level.

You can follow how price responded to each of these key reference levels and how price either continued to the next level, or reversed instead.

It’s possible we’ll see a pattern repeat of the 2010 structure.

By that, I mean that we could see a slight pause into the 1,380 reference level and then price could resume its trend, propelling price higher in the context of this new Bull Market.

Look for a break firmly above 1,400 (a simple reference number) to be a bullish breakout trigger.

In terms of other Fibonacci levels, the only higher barrier (or target) would be the 88.6% level at 1,473 which is just shy of the 1,500 “round number” level.

But let’s not get ahead of ourselves at the moment.

Let’s keep the 1,380 level in mind along with the ’round number’ 1,400 to watch as either a potential turning or pausing point (for bearish traders) or else a breakthrough buy above these levels for bullish traders.