A Quick Review of the SP500 Long Term Fibonacci Retracement Levels

It’s been a few months since we’ve had to concern ourselves with the large-scale Fibonacci Retracement Levels of the entire bear market phase, but today brings in the 50% retracement back to the forefront.

Will it hold?  And if not, where is the lower level?  Let’s review our long-term Fibonacci Grid:

Starting with the October 2007 high (peak) and drawing to the March 2009 low (bottom), the respective Fibonacci Retracements to the upside become:

38.2%:  1,014
50.0%:  1,121
61.8%:  1,228

These are levels that have been important to the market in the past, as they’ve held as critical support or resistance (turning points) since they became in effect from mid-2009 to the breakaway in 2011.

As I showed in this morning’s post on long-term reference levels, the key short-term price levels converge about the 1,140 to 1,040 range which is the 2010 consolidation period and the zone between the 38.2% and 50% upward retracement Fibonacci levels.

Fibonacci retracements are not magic, but sometimes they result in feedback loops of buying or selling that develop from self-fulfilling prophecies (traders buy at a Fibonacci level because they expect it to hold, and the aggregate act of buying at the level actually results in a rally).

We’ll see if that develops this week, but in the event that the 1,121 level fails (which was slammed just a few minutes ago/Monday), this opens up the market for a potential fall to the price and Fibonacci confluence at 1,010/1,040.

These are only guides for potential self-fulfilling/self-referential movement and are perhaps best used by short-term traders looking to play a rally up off this level, or to short a breakdown from these levels depending on actual market performance (outcome) at a test of a higher timeframe reference level.

Corey Rosenbloom, CMT
Afraid to Trade.com

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