S&P Hits Large Scale Monthly 50% Fibonacci Retracement

Sep 16, 2008: 10:43 AM CST

I’ve been listing it as a potential target for some time and today the S&P 500 Index tested the 50% Fibonacci Retracement from the 2002 low to the October 2007 high major price swing – it’s also a 50% Retracement of the recent Bull Market – breaking beneath this level would be extraordinarily significant.  Let’s look:

S&P 500 Index Monthly Chart with Fibonacci Retracement Overlay:

These are the levels to watch, write down, and memorize.  From the 2002 lows to 2007 highs, here are the following major/long term Fibonacci Retracement levels on the S&P 500:

38.2%:  1,267

50.0%:  1,172

61.8%:  1,077

Generally, these levels provide significant support, and as you can tell above, the 38.2% retracement provided support three times before it was broken.  The market has not closed beneath this level on a monthly basis, but it looks like the odds are high that we’ll close beneath it for September, barring a bullish recovery.

Right now, the 1,172 area is expected to provide support – significant support at that.  It’s a psychological level, and a known level used by large funds and traders/investors. We breached this level temporarily today, making an intraday price low of 1,169, but as of noon EST, the market appears to be holding this level for the time being.

Should price fail at the 50% retracement level, it will set up a test of the 1,077 level for the next logical area of support, and if that fails then we’re looking at S&P value of 1,000 or less – all support bets will be off at that point.

A bounce may occur at these levels, so it’s probably not the best idea to rush out and get maddeningly short, so do use caution if you’re buying or shorting in this market, and watch that 1,172 level with Eagle Eyes!

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