A Look inside Fibonacci Confluence on Recent SP500 Move
Let’s take a quick look inside the recent “Wave 5” Downswing that began in early January 2009 and look at two majorly important Fibonacci Confluence Zones that have developed inside that structure.
(Click for larger chart view)
What we’re seeing is an exact Fibonacci Confluence at the 770 area on the S&P 500, though it’s already slightly been broken to the upside (as of this writing, we’re at 773), but it could provide at least initial resistance.
Structurally, we’re perahps in Wave 4 of (5) and the expectation is to find overhead resistance and begin a new swing down – there’s of course no guarantee that will happen though, but it seems to be the widely accepted viewpoint.
A Negative Momentum Divergence, namely the potential for the “Three Push” Reversal pattern, has formed under this recent sharp price advance. Notice the positive divergence in early March that preceded this recent rally.
If we break above the 770 level, then the next Fibonacci Confluence will come in at the 800 level, which is also prior support from supposed fractal Wave 1 Down. For the Elliott Structure to be valid, we would expect price (in fractal 4) to remain under the price territory of Wave 1 (800) so let’s see if that’s the case. If we break above 800, then the phrase “All Bets Are Off” comes into play which could trigger a decent short-covering (stop-losses being placed above 800) rally.
Feel free also to view Adam Hewison’s video on whether we’re having a “Bear Market Rally… or Serious Reversal.”
If anything, this view gives you a little more information on the S&P 500 hourly chart.
Corey Rosenbloom
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade
Register (free) for the Afraid to Trade.com Blog to stay updated
Good analysis.
I’m looking for bear market flags down to possibly 700.
Good work!
Might I ask what the yellow line is crossing the 3/10 MACD?
hi corey,
how does the “Three Push” Reversal work? and thanks so much for the insightful analysis.
Thanks Phoevos!
Joe,
We could get flags off this level.
It’s a 16 period average of the difference between the 3 and 10 simple moving average – it serves as a ‘trend’ function (or smoothing function).
It roughly correlates with price being above (or below) the 20 EMA.
Anon,
The 3-Push is a reversal pattern that plays off a multi-swing momentum divergence. Each successive up-swing forms on lower momentum.
Here’s a peek at an educational page I’m working on:
http://tinyurl.com/cu4482
Corey,
I found your site through a post on marketwatch.com. I am a newbie buy and hold investor who is dabbling in the market for the first time ever.
My intuition has served me well so far but your Fibonacci analyses provides a mathematical framework to understand swings and sentiments. Very intersting stuff.
A suggestion – can you post links to educational material on Fibonacci on this site? Some tutorials – if you have the time – and a glossary will be mighty helpful to folks like me who are wrestling with the basics.
Thanks and keep up the good work.
Genghiz
CA
Genghiz,
Welcome to the world of trading! Fibonacci is traditionally more of an advanced concept but if it speaks to your mathematical/analytical background, it’s absolutely worth looking into. Feel free to email/contact me with questions.
I’m actually working on doing a Fibonacci primer when my new website launches. It’s NOT ready yet, but you can get a sneak peek at:
http://www.afraidtotrade.com/fibonacci
Corey
Is it just me, or do I now see all up moves are 5 waves ad all down moves are a b c corrections? Is this what is expected when the trend changes?
Don,
The recent action off last week’s low does look like a 5-wave advance, doesn’t it? It could be part of the A wave of a Zig-Zag (a zig-zag has A with 5 waves; B with 3 waves; and C with 5 waves). In fact, we would expect a Zig-Zag because Wave 2 was a Flat (ABC).
It just seems to ‘feel’ like the bottom isn’t in place yet but it could certainly be in place. I’m just not ready to call this a bottom yet – the structure seems to indicate that we get at least a test of the lows.
what about NASDAQ?
Great site! I think wave 3 of the overall market correction actually just completed. The recent bottom was wave 5 of the Big Wave 3. This past week we have seen the start of the wave 4 correction for the overall market. Currently nearing the completion of Wave A up.
these targets are really familiar
Akkilles,
I’ll try to post that and the Dow as well. I’m just focused on the S&P as it enters significant confluence.