This is the S&P all sessions chart, which has seen a fairly decent recovery over the last week or so. There is still more to do before we can get exited in this one with the big test area not too far away. The 38.2 Fibonacci Retracement of the move down from the 11th of October last year comes in at 1381.80. This level has been breached twice but subsequently failed. On each of these occasions we continued with the pattern of making lower highs. The last failure high was at 1389, just above the Fib and makes this area a strong resistance level. Providing there are no more shocks like Bear Stearns etc, we should be testing this level soon but be aware that the sellers will be waiting to defend this resistance and maintain overall control.
Indicators in Play
Fibonacci introduced his sequence of umbers to mathematics back in the 1200’s. These numbers appear in all walks of life but have an eerie influence on trading. We use the 38.2 level as an indication of the strength of the correction or indeed if the longer-term trend has changed or not. The decision rides on our ability to hold above this Retracement line or our failure at this point.
Summary
Just at this point we are sitting on the fence with the expectation of some further gains. However, once we reach the 1381-1389 area we will be looking for cracks to appear with a view to selling the market with a stop just above1400. The overall feeling is that there could be more bad news to come but it is still wise to wait for technical levels to short.
David has been
analyzing and trading the worlds financial markets for the past 25 years. After an initial grounding with Mercury Asset Management and Warburg Securities he went on to set up his own brokerage operation in London. Since then he has appeared regularly on Bloomberg Television and been involved in providing analytics on behalf of some of the worlds major exchanges. He is also a member of the Society of Technical Analysts.
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