Hidden SP500 Fibonacci Confluence Last Hope for Bulls

Jul 1, 2010: 1:58 PM CST

We all were watching the 1,040 level on the S&P 500, and when it broke, traders reacted as expected:  Bears pounced and Bulls ran for the exits.

If you’re asking yourself why we bounced so hard this morning, then you didn’t see the ‘hidden’ defense price via a large-scale Fibonacci Confluence.

There’s never a guarantee any Fibonacci level will hold when price tests it, but for now, this level held so we need to focus on it as the key level to watch.

A quick glance at the chart shows two very important Fibonacci Retracemnents converge at the 1,010 level.  That’s where we bounced strongly off today’s lows, and where the bulls will stage their last chance of a comeback after losing the “battle” of 1,040.

The Blue lines represent the large-scale Fibonacci Retracement Grid from the 2007 top to the 2009 bottom, with the market peaking in April 2010 8 points shy of the 61.8% retracement at 1,228.

You would reference these levels on the way UP, but they still exist as price trails to the downside.

As price trails lower, you need to draw a new Fibonacci reference grid, starting with the March 2009 and stretch to the April 2010 high – this is the Green Grid on the chart.

We can see that the 38.2% retracement rests at 1,008, and today’s low so far was 1,010.

This very important short-term level converges with the 38.2% – strangely enough – retracement of the entire bear market grid at 1,014.

Bulls defended this level in today’s trading action, so it has now become a known reference level of potential support.

Just like 1,040, if bulls cannot hold support here at the lesser known 1,010 level, then we will look lower to target the 50% line at 943 or eventually the 61.8% line at 876 which happens to correspond with the neckline of the Head and Shoulders (failed) pattern from June.

Strange how that happens.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

22 Comments

22 Responses to “Hidden SP500 Fibonacci Confluence Last Hope for Bulls”

  1. July 1 A Day the Intermarket Relationships Fell Apart Temporarily | Afraid to Trade.com Blog Says:

    […] its sell-off from yesterday’s break of the important 1,040 level, supported at 1,010 ( I showed the Fibonacci Confluence here), and then rallied into the […]

  2. Michelle B Says:

    Excellent post as you were so certain yesterday that the edge of the cliff has been taken out (except for one small caveat, that if 1040 was retaken, then the market would have clawed its way back onto the cliff).

    It is inspiring to see how detailed and flexible focus works. You have now pinpointed a support area that could very well cause the whole popped stops play, but in the opposite direction if SPX can rise above 1040.

    It is always calming to read your posts, like listening to soothing music.

  3. Corey Rosenbloom, CMT Says:

    Thanks Michelle – I'll be honest, though I knew 1,000 was a secondary target to play for to expect a potential bounce, it wasn't until after the bounce that I started wondering why we didn't hit 1,000 and remembered the larger scale Fibonacci grid as I show above.

    It's a reminder to me to keep these large-scale Fibonacci prices in memory in case you need to reference them suddenly and not in the heat of battle!

    I still believe 1,040 is far more important than this level, but the market is telling us that 1,010 is important for now so we must pay attention.

  4. Nrgtrader Says:

    Note the confluence of the 68% retracement from jun 09 lows…

  5. M copestake Says:

    Hello all,

    It may just be a coincidence but the Fib profection of the 1576-666 move from the recent 1219 high also puts the 23.6% along with the two 38.2's that Corey spotted, and its own 38.2% also at the 878 confluence.

    Love the blog Corey, keep up the excellent work.

  6. Dan de Man Says:

    Looks like a hammer to me.

  7. Dan de Man Says:

    Anybody notice gold & silver falling off the cliff. So much for safety. LOL

  8. Corey Rosenbloom, CMT Says:

    Dan,

    Of all the things that happened today, I'm most surprised by the collapse in gold.

    I posted this morning that I felt it was “heavy” and primed for a fall … but I didn't expect a collapse.

    One explanation I heard is that to cover stock losses for the quarter, some investors are selling their profitable positions in gold, but that thought doesn't seem to explain the viciousness of the collapse. Very interesting.

  9. Corey Rosenbloom, CMT Says:

    I don't see that yet, but if you add the 23.6% of the large scale Fib which is 881, it aligns exactly with the 61.8% of the 2009 rally which is shown above at 878. Very good insight there – I didn't include the 23.6%

    Fibonacci is fascinating and I love these kinds of charts.

  10. Dan de Man Says:

    Oops didn't see you're post this morning Corey. Thank you.

    That's a good explanation. It could possibly be the Euro too.

  11. yorsh Says:

    gmm…1027…not wonderful but better than expected on morning trade…Asia may be in gren tommorow

    P.S. sorry for my english…I”m from Eastern Europe

  12. Ken123 Says:

    Uh,…the SPX downtrend channel line was hit at 1015…That's what I was looking at. Fibs work sometimes, but channel lines and trendlines are much more reliable. Either way, it got a bounce, but all bears will hit the “sell short” button if/when we reach the 1035-1040 area. You can bet on that. This move down has been pretty orderly for it to not revisit the lows relatively soon IMO. Happy trading.

  13. yorsh Says:

    eur/usd 3 figures for day…fantastic -)))

  14. Nrgtrader Says:

    which downtrend channel line are your talking about? (IE dates)

  15. Theyenguy Says:

    If the currency traders take the Yen, FXY, lower, the S&P could very well rise for a while.

  16. Zee Says:

    I appreciate your blog.
    I am guessing the markets will bounce a bit, then test the 50% retracement at 943,

  17. pw Says:

    Corey – FWIW I keep an eye on the longer term patterns and after this post noticed that 1006+/- is the 38.2% retracement of the 1982 low to 2007 high (a run that several ewavers consider a wave of some degree). Then again may be suffering from data mining bias…

  18. Quick Update on the SPX Gann and Andrews Pitchfork | Afraid to Trade.com Blog Says:

    […] lo and behold, there was a major price confluence with two Fibonacci Levels – as I highlighted yesterday – at the 1,010 level which was Thursday’s […]

  19. MadScientist Says:

    You sure about that pw?

    I think 1,013.15 is the 61.8% support for the 1982-2007 wave – we're there now, thus the reason for bulls to run from here.

    1576.09 2007 high price
    102.42 1982 low price

  20. Midweek SP500 Update for July 7 Favors Retracement | Afraid to Trade.com Blog Says:

    […] We see the market in a highly probable bounce off the 1,010 level as I wrote last week in the post “Hidden Fibonacci Confluence Support.” […]

  21. Upside Levels to Watch on the Daily SP500 July 8 | Afraid to Trade.com Blog Says:

    […] expected a likely bounce higher off the confluence support at the 1,010 level, and that’s exactly what we got in the last two […]

  22. Market Internals Matter! A Closer Look at the Three June Market Reversals | Afraid to Trade.com Blog Says:

    […] the market hit 1,010 – a confluence support area – Breadth and VOLD both showed higher lows in a classic positive internals […]