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FIBONACCI


Time To Buy SPY

10/07/08 08:53:50 AM
by James Kupfer

The S&P 500 has moved into prime short-term buying territory with today's move.

Security:   SPY
Position:   Buy

Last Monday (September 29), I wrote regarding the Standard & Poor's 500: "In my estimation, the next logical [support] zone is where the 61.8% Fibonacci level and the August 2004 bounce coincide at roughly 1070." Albeit much quicker than I anticipated, this forecast has come to fruition. With today's move, the S&P 500 is currently trading at 1013 on an intraday basis. I have included an updated S&P chart in Figure 1 (prior to the end of the trading day).

FIGURE 1: S&P 500, WEEKLY. The market is approaching a point where traders can close out short positions and look to establish short-term long positions.
Graphic provided by: Wealth-lab.
 
So what do we do now? Although the plummet over today and the last few weeks may not be completely out of steam, we are approaching a point where nimble traders can close out short positions and look to establish short-term long positions. Assuming we do get a bounce quickly, the chart will look something like Figure 2:

FIGURE 2: S&P 500, DAILY. Assuming a bounce arrives quickly, the resulting chart will look something like this one.
Graphic provided by: Wealth-lab.
 
Given that we are still in a primary bear market, I suspect that any bounce we get will be short-lived. There are a few levels of resistance that the market will have to pass through on the way up. First will be the purple downward-sloping trendline, although I doubt this will be hard to surpass. The second is found by drawing a Fibonacci retracement between the August 2008 highs and the recent low for today; note that the 38.2% retracement level is right around 1136. This coincides with the September 18th low at 1133, which has turned from support into resistance (red line). The 50% retracement level will also be significant resistance because it is at almost the same level as the 50% support level shown on Figure 1 in green. Finally, should the S&P manage to surpass all those hurdles, it will then reach the 61.8% retracement level. This price level at 1203 also coincides with the July 15th low at 1200, which now acts as resistance instead of support.

Although I suspect that something will materialize shortly to push the markets higher, any bounce will have a number of significant resistance levels to push through before we could begin to think of taking long-term bullish positions. I would treat this as a good trading opportunity and a chance to reestablish short positions for the resumption of a move down.



James Kupfer

Mr. Kupfer is a market professional and amateur stock market commentator. Disclosure: It is likely that Mr. Kupfer has or will enter a position in any security he writes about.


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Date: 10/12/08Rank: 4Comment: 
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