Fibonacci Checkup and Plan On The S&P 500 Index (INDEXSP:.INX, SPY, SPXU, SH, SDS)

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August 6, 2012 10:58am NYSE:SDS NYSE:SH

Corey Rosenbloom: Let’s take a moment to update the long-term and short-term Fibonacci Retracement grids for the S&P 500, taking note of which levels are in play at the moment.

For that, let’s start with the larger Weekly Chart perspective:

These levels are the dominant Fibonacci Retracement Levels against the 2007 Bear Market decline.

I highlighted regions where price stalled or reversed previously at these levels (drawn from the peak of 1,576 to the bottom at 666).

At the moment, the 1,381 level which is the lesser-known 78.6% Fibonacci Retracement rests near the current index value of 1,390.

In general, once price firmly breaks through one level, it tends to travel to the next target level as we can see from prior examples.

We’ll see from the hourly chart that there are no remaining immediate retracement levels above the 1,390 zone, which will become the focal point at the moment.

If we drop the perspective to the Daily Chart, we see one more Fibonacci Grid:

I drew the Green Grid from the 1,422 April 2012 high to the recent 1,266 swing low from early June to reveal the upper retracement levels against that decline.

Similarly, we can see how price reversed short-term off these near levels in the context of the rising ‘flag’ style pattern.

Like the blue bigger picture grid (overlaid), price is just above the 78.6% retracement at 1,389 (call it 1,390 for easy reference).

While we can use the Daily Chart to see the recent past, we can see the perspectives and create a game-plan easier off the intraday chart below:

I overlaid the “Rising Parallel Trendline Channel” which we’ve all been following closely.

There’s an overlap at the moment at the 1,390 to 1,395 level, though price seems to be keenly targeting the 1,400 “Round Number” reference level.

Knowing these levels and the current structure, how can we devise a short-term game plan?

We’ll be aware of our classic “IF/THEN” style of planning and incorporate the resistance with the current trend (which is up).

Quite simply, a breakthrough above the resistance confluence at 1,395 and specifically a breakthrough above 1,400’s “Round Number” resistance calls for additional bullish pro-trend plays above 1,400, which could trigger yet another Short-Squeeze or Popped Stops breakout opportunity.

The bullish thesis suggests that a breakthrough above 1,400 could carry through the visual Open Air (no known resistance, once broken) toward 1,420 or even higher.

Of course, the bearish or alternate thesis suggests that resistance will hold and that price would trade lower toward the next confluence support which would target 1,360 (Fibonacci) or the 1,345 trendline and Fibonacci confluence.

Plan your short-term and especially intraday trades within these levels of the current structure (uptrend vs. resistance with potential for breakthrough).

Related: S&P 500 Index (INDEXSP:.INX), SPDR S&P 500 ETF (NYSEARCA:SPY), ProShares UltraPro Short S&P 500 (NYSEARCA:SPXU), ProShares Short S&P 500 (NYSEARCA:SH), ProShares UltraShort S&P 500 (NYSEARCA:SDS).

Written By Corey Rosenbloom, CMT From Afraid To Trade

My name is Corey Rosenbloom, CMT (Chartered Market Technician)  trader, educator, analyst, and I am excited to share with you my  experiences studying and trading the markets and to hear from you  regarding your experiences, challenges, and frustrations, and successes.  My goal is to create a community dedicated to reaching out to those who  have been burned by the market or are anxious about risking their money to make money in the stock, options, or futures markets. Together, we can share strategies and learn how to overcome crippling fears that keep  us from achieving our highest potential.

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