How Much Can We Bounce?

This seems to be the key question this morning - How high can we go from here? There aren't too many believers out there from what I can tell, but that evidence is strictly anecdotal. The less believers, the more we can bounce right?

Since we keep getting these violent swings in equities, we have to keep our Fibonacci retracements up at all times. During the correction from October's 20% rally, these key retracement levels each came into play. As you can see in the 30-min chart below, the 38.2% and 50% retracements held briefly, but ultimately it was the 61.8% level that created the bottom:

Let's flip this around now to see how high we can bounce based on levels off the recent 10% sell-off in the S&P500. As we can see below, the first key level is about 1208, although the 50-day Moving Average is around 1205. The first level of interest is right around that area. 1225 and then 1240 are the next key levels.

There are a ton of levels on the way up here where sellers could come in. This makes it very difficult to figure out where to take cash off the table (if that is what you're looking to do). I think the potential is there for a nice year end rally, but the market has a ton of work to do. This is going to be an interesting week.

A major bullish sign is that RSI has remained in bullish mode on the daily chart during the entire 10% correction. If the S&P can sell off that hard, that fast, and RSI is still in Bullish mode? I have to take that as a huge positive.

Tags: $SPY $SPX $ES_F