Quick Pullback Planning for the SP500 to Start December

And now for something completely expected – after multiple days in a row to the upside with persistent negative divergences, stocks pulled back from their overextended conditions.

However, how far may stock prices fall and what levels are both potential downside targets and possible buy levels?

Let’s update our charts and plan accordingly:

Markets tend to “wave,” or trade in a trend higher then retrace part of the movement (trade lower) before trading higher again.

It’s relatively rare to get sustained, one-directional price action day over day like we saw from October’s low to the end-of-November peak (so far).

Nevertheless, stock prices are logically retracing down from the recent 2,070 peak and the question is “where will they go?”

Our first target is roughly here at the rising 20 day EMA and price confluence near the 2,040 level.

Look for any type of bounce/rally off this level.

If instead, price logically retraces lower, look for a quick play down toward the 2,000 level and 50 day EMA.

We can get more sophisticated by scratching the surface with a Fibonacci Retracement Grid:

Going from a standard Fibonacci Retracement grid, our first “38.2%” retracement intersects 1,980.

Should sellers force the market lower with additional pressure, look to target the 1,950 confluence and then on a steeper pullback, the 1,920 level.

We’ll continue to update our charts and trade plans as price continues retracing lower… keeping in mind that any of these levels could be possible inflection (bullish reversal) spots.

Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).