05/17/23
It’s become abundantly obvious that the S&P 500 is at a crossroads with the economy.
Remember, the economy and the market are NOT the same…
And as much as our holy elected officials in Washington want the world to believe that no sleep should be lost, the chart says otherwise.
Now, I’m not going to go into the nuances of the bond market… the debt ceiling debacle… or even inflation…
Unless you’ve been living under a rock, all of these subjects have been talked about ad nauseam…
But what I want to cover in this edition of Before the Bell is what every investor and trader should know right now.
And it’s all about one number…
61.8.
When it comes to trading, it’s the most important number to know on the Fibonacci Retracement.
If you’ve been following along for a while, you’ve likely seen where I note this key level as an area for buying on a pullback or adding to a short on a downtrend.
What I’m showing you here is the importance of that figure and how the market’s sideways action puts us on the brink of a major move…
Check out the first set I’ve added to the chart on S&P 500 E-mini Futures(ES):
Busy chart.
This is the retracement from the highs of late 2021 into early 2022 all the way down to the bounce from the October 2022 low…
Looking at the move made, we’re at the halfway mark of the retracement with the 61.8% level next in the queue — depending on your bias.
For me, I’m leaning bullish in the short term.
Now, look at the Fibonacci Extension based on the downtrend…
The way you paint this on the chat is from peak to first pivot and second pivot, forming a sort of ABC, making the April 2022 high more of a confirmation setup on the way down…
If you look at the face drawn on the chart, it’s at the 61.8% level.
And the S&P 500 has rejected this level a total of five times since turning the corner last fall.
But let’s flip that idea with the Fibonacci Extension and assume that October was indeed the bottom:
Sure enough, the 61.8% retracement level is at it again.
Assuming this is only the beginning of the next run, a prime target would be the 1.236% level with the 1.618%, 2.618%, and 4.236% marks next (not pictured).
But on this run, the 61.8% level has become more of a ceiling than a floor…
Here’s what it looks like when it becomes support:
Look familiar?
This is a look at the S&P 500 from the low of the Coronavirus fallout with the Fibonacci Extension on the uptrend…
And the index found support at the 61.8% mark, topping at a prime profit-taking level, 2.618%.
It’s an important level, but the next level that longer term traders and investors tend to look at is 4.236%, which is an ultimate goal, but quite a ways away.
If you’re on the fence, look for 61.8% to hold the index higher…
Consolidating ranges are a sign that a sizable move is on the way.
And right now, no one is certain of that move’s direction…
This material is not an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed, and is to be used for informational purposes only. Any performance results discussed herein represent past performance, not a guarantee of future performance, and are not indicative of any specific investment. Due to the timing of information presented, investment performance may be adjusted after the publication of this report. There can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance levels or be suitable for your portfolio.
