Knock Knock Knocking on Fibonacci’s Door SP500

Dec 23, 2009: 12:05 PM CST

To quote an old song by Bob Dylan, the S&P 500 is “Knock, Knock, Knocking on Fibonacci’s Door,” … meaning the intraday S&P 500 keeps bumping against this critical level of resistance that marks a key turning point between Bull and Bear.

Let’s take a closer look.

This is the 30min S&P 500 intraday chart (with 20 and 50 period EMAs) with the 1,121 level marked on the chart.  We touched this level intraday this morning and seem to be making a mid-day attempt to test this level again.

All eyes are watching this level very closely – or at least they should be.

Sellers expect price to turn down and fall from these levels while buyers expect price to ignore the level and break above it.

Because this level is considered a key boundary line, there are many orders both above (buy orders to get long combined with stop-losses to buy to cover from the sellers) and beneath the line (from short-sellers waiting to enter short, and from those who are already long and will need to stop-out).

This creates a “push/pull” environment with traders eagerly (anxiously?) awaiting to put on or take off a position at these levels.  The resolution could be violent in either direction.

A break above the level would initially start to enter the “pocket of stops” from the short-sellers and could immediately lead to a quick ‘short-squeeze.’  Don’t get caught short in that.

Remember, a good deal of technical analysis and trading is ‘self-fulfilling,’ meaning as more people watch and discuss these levels, these levels take on an importance because people are watching and getting ready to act.

You need to be aware of this dynamic.

Here is why 1,121 is important:

It is exactly the 50% “Fibonacci”  Retracement from the 1,576 peak in October 2007 to the March 2009 bottom at 666.  People react to key Fibonacci retracement of that magnitude.

Or, if you just strike out the word “Fibonacci,” then it is simply the halfway point between the peak and the bottom of the recent market decline.  That’s an important ‘mile-marker’ in the road.

Whatever happens here should give us a clue as to what to expect next.

A solid break above this line gives us further upside targets, including 1,200.

A failure to overcome this resistance line gives us short-term targets of 1,050 and perhaps 1,020.

Aggressive traders will be able to profit intraday from the inflection (reaction) that takes place at this level, if they have not already been doing so.

Watch and trade closely at this absolutely critical market level.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

21 Comments

21 Responses to “Knock Knock Knocking on Fibonacci’s Door SP500”

  1. pipercolt Says:

    yes, but i would recommend putting on that downtrend line connecting the highs from 2007 for more confluence. thats an important intersection. We could hang out here and hold this area and clear that line.

  2. terlyn Says:

    I am just wondering if bears have taken out their stops at this point and there will be less of a popped stops phenomenon. It really seems overdone. And bears are no longer so sure of their position. They've been quite rattled.

  3. terlyn Says:

    Also, I was remembering a report from several months ago, an analysis by Ralph Acampora (sp?) who said that in the last 15 years the averages were oscillating around the 10,000 level. I checked, and you could certainly make a case for this, Prechter notwithstanding.

  4. terlyn Says:

    It is the rock of Sisyphus trying to get that price over 112.10.

  5. pipercolt Says:

    wondering if the only one who will make any money in this market would be the option sellers as it could oscillate around this level for the foreseeable future. They've got some of my money.

  6. Corey Rosenbloom, CMT Says:

    Exactly! That's an even better image than the Dylan song.

    Push the rock up the hill, watch it fall down.

    Repeat for an eternity.

  7. Corey Rosenbloom, CMT Says:

    Exactly.

    We haven't moved much from where we were in 1999. Strange as it may seem. Gold is up big and bonds are up but stocks really aren't.

    This is another “Lost Decade” as they're calling it.

  8. Corey Rosenbloom, CMT Says:

    Maybe, but the only problem is that

    A) Premiums are low (VIX is at new 2009 lows)
    B) The market WILL break out of this trading range eventually and the break could be big. If caught short an option the wrong way… ouch.

  9. Updated 1 minute chart of SP500 at 1,121 Level on Dec 23 | Afraid to Trade.com Blog Says:

    […] at 1,121 Level on Dec 23 Dec 23, 2009: 3:39 PM CST // Following-up from my prior post “Knock, Knock, Knocking on Fibonacci’s Door,” I wanted to post a quick update on the current intraday S&P 500 Index chart to see just […]

  10. pipercolt Says:

    anyway sire, what worries me is that we've cleared that downtrend line touching the highs. Agreed we're due for a pullback but I don't it will be big.

  11. Updated 1 minute chart of SP500 at 1,121 Level on Dec 23 | Penny Stock Trading System Blog Says:

    […] from my prior post “Knock, Knock, Knocking on Fibonacci’s Door,” I wanted to post a quick update on the current intraday S&P 500 Index chart to see just […]

  12. A Quick Update on the SPY 60min Chart Dec 24 | Afraid to Trade.com Blog Says:

    […] “Knock, Knock, Knocking on Fibonacci’s Door” […]

  13. A Quick Update on the SPY 60min Chart Dec 24 | Penny Stock Trading System Blog Says:

    […] “Knock, Knock, Knocking on Fibonacci’s Door” […]

  14. Jayesh Gala Says:

    Thanks Corey… I follow your analysis regularly. You keep it simple and that makes its more insightful 🙂
    “Remember, a good deal of technical analysis and trading is ’self-fulfilling'” How True !
    But sometimes in consensus, market delays or alters its immediate near term moves ?

  15. Jayesh Gala Says:

    Thanks Corey… I follow your analysis regularly. You keep it simple and that makes its more insightful 🙂
    “Remember, a good deal of technical analysis and trading is ’self-fulfilling'” How True !
    But sometimes in consensus, market delays or alters its immediate near term moves ?

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  20. HeistLab 1 » Blog Archive » Updated 1 minute chart of SP500 at 1,121 Level on Dec 23 Says:

    […] from my prior post “Knock, Knock, Knocking on Fibonacci’s Door,” I wanted to post a quick update on the current intraday S&P 500 Index chart to see just how […]

  21. HeistLab 1 » Blog Archive » A Quick Update on the SPY 60min Chart Dec 24 Says:

    […] “Knock, Knock, Knocking on Fibonacci’s Door” […]