Big day today for the US Stock Market. Earlier this week, we were able to penetrate through some key resistance levels that we’ve been watching since the original breakdown in October. We noted back then that we were approaching another test of an important trendline and that the market seemed vulnerable. Once we broke down, it was essential to hold on to some key Fibonacci support levels – and we did. The 61.8% retracement held perfectly, especially in the e-mini futures market.
So this 1420 level that we got back above this week is really what we’re watching (see here). These prices represent the March and August highs, which turned out to be critical breaking points for S&Ps this Fall. As long as we’re above there, I think it’s all systems go. Clearly, we should expect some sellers to come in at the 1460s, where we saw them back in September and early October. But after some consolidation, I don’t see any reason why we can’t see 1500, which would be the 40-point measured move based on the 1420-1460 levels. These are conservative estimates, but you can also make the case that the 1540s would be the next target from the 161.8% Fibonacci extension.
To the downside, I think we need to reiterate the 1420 area. Closing prices back below there would be a sign that the market isn’t ready yet. I’m not in that camp, but it’s important to recognize the risks associated with such a decline. A false breakout this week would signal to us that much more consolidation is necessary. So we’re watching these levels closely.
Technical Analysis has worked beautifully in this particular market. With all of the noise surrounding this stuff going on in Washington, I find it as important as ever to focus on the only thing that actually matters. Guys, if we’re not looking at price, how on earth could we be expected to manage risk properly? Price is the only thing that pays us. The only thing. So how about we make it a priority?
Tags: $ES_F $SPX $SPY