What Does Leo Fibonacci Think?

When markets are in correction mode, I think it always pays to look for levels where bottoms can potentially be put in. This is where we bring out our Fibonacci retracements to see where Fib levels might match up with former support and resistance. It isn't always as easy and as clean as we would like, but let's take a look.

Here is a daily bar chart of the S&P500 going back to the November lows. This, to me, is where this last big leg of the rally began. Although the biggest support seems to be just under this 1540 level, it doesn't coincide with any Fibonacci retracement levels:

The level that I think makes the most sense as far as support and resistance falling in line with a retracements is the 1474 area. This was resistance back in the Fall and also represents the 61.8% Fibbonaci Retracement. I think it's still a bit premature to call for a correction that steep; it represents another 6.3% to the downside, which would make it a total of 12.6% correction from the top in May. But it certainly isn't out of the question.

To me, if we test this 1540, the bulls really want to see that one hold. If that doesn't work, then I think the 1470s are in play. 12% corrections aren't that big of a deal, especially from where we've come from, so we have to keep these levels in mind.

Go get 'em

Tags: $SPX $SPY $ES_F