Quick Updating the Long Term SP500 Fibonacci Reference Grid

Feb 17, 2012: 10:33 AM CST

With the S&P 500 interacting with another key overhead price level, let’s take a moment to pull the perspective back to update the long-term (from 2007’s peak) Fibonacci “Bull Market” Retracement Grid.

Here’s the clean picture on the Weekly Perspective:

The Long-Term Fibonacci Retracement grid begins at the 2007 market peak (1,576) and ends at the 2009 March low (666).

The Retracement Grid measures the percentage price has retraced higher in the context of this 1,576 to 666 movement.

For example, a recovery all the way back to 1,576 would be a full 100% “retracement,” while the other levels (38.2%, 61.8% and the lesser known 78.6%) are your classic Fibonacci Retracement Levels.

The main idea at the moment is that the lesser known 78.6% Fibonacci Retracement line rests just above us now at 1,382, which is also just above the May 2011 peak of 1,370 (another price area we’re all watching closely).

Let’s drop to the Daily Chart to see how the market has reacted to prior Fibonacci Retracements:

Click for full-size image.

I highlighted areas of prior short-term reversals from (or very near) the popular Fibonacci Reference levels.

Interestingly enough, the April 2010 market peak occurred very similarly to the May 2011 peak – falling a few points shy of a full touch of the higher Fibonacci line.

In the case of 2010, price came back to the 1,228 (61.8%) ‘big’ retracement in November, stalled, and then broke strongly higher on its journey to the next level.

That’s the basic way to view a Fibonacci Grid like this:

know what areas are important and then should price break firmly through one of these key levels, then one can expect a continuation movement to the NEXT important level.

You can follow how price responded to each of these key reference levels and how price either continued to the next level, or reversed instead.

It’s possible we’ll see a pattern repeat of the 2010 structure.

By that, I mean that we could see a slight pause into the 1,380 reference level and then price could resume its trend, propelling price higher in the context of this new Bull Market.

Look for a break firmly above 1,400 (a simple reference number) to be a bullish breakout trigger.

In terms of other Fibonacci levels, the only higher barrier (or target) would be the 88.6% level at 1,473 which is just shy of the 1,500 “round number” level.

But let’s not get ahead of ourselves at the moment.

Let’s keep the 1,380 level in mind along with the ’round number’ 1,400 to watch as either a potential turning or pausing point (for bearish traders) or else a breakthrough buy above these levels for bullish traders.

Corey Rosenbloom, CMT
Afraid to Trade.com

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4 Comments

4 Responses to “Quick Updating the Long Term SP500 Fibonacci Reference Grid”

  1. Stemski Says:

    Hi Corey,

    I am a long time viewer of your blog. Excellent work by the way.

    Allow me to tell you a small story.

    In December 2011, I had to pool together all of my retirement money in anticipation of legal bills for one of my children, so I went to cash. 

    This issue got resolved at the end of January, and now I want to invest again, but I am terrified. I cannot make any moves as if I am paralyzed. My study of markets tells me that “suckers” buy at tops. We have run up from 1257 (when I went to cash) to 1361. 

    I know you probably cannot give financial advice, but what would you do with 80% funds in cash?

    Should I wait for break above 1380? Should I wait for correction?

    Thanks
    Stemski

  2. Corey Rosenbloom, CMT Says:

    Stemski,

    True, I can only speak in general terms and probabilities, not specific to your situation.

    In general, it's psychologically preferable to enter positions on pullbacks, not into overextended territories but as I've been discussing, 'creeper trends' are their own unique environment and we've seen those from 2009 to present.

    When entering positions into trending environments, the safer play tends to be waiting for retracements (tighter stop at least) while the more aggressive play is to enter on breakthroughs of known resistance – and we've had a few of those develop and may yet see additional breakouts if we see impulses above 1,370 then the next level at 1,400.

  3. Yatahee Says:

    Great analysis! I have been thinking that our current trajectory looks very similiar to 2010. Do you see the volitility pulling off of current lows lead to spiking like it did in 2010?

  4. rinoarinoa Says:

    I am someone who can't really rely on probabilities since its on of my witness.
    But this is certainly educational. Thanks for posting!

    Eloisa
    My blog : veste en simili-cuir