By Andrew Nyquist
The rubber band was stretched too far. Similar to sentiment getting too negative too fast, price fell too far too fast.
On November 16 most major indices put in hammer reversals, marking a short term technical bottom in the equity markets. Now, not all technical reversals are created equal, but all reversals need to be respected. On that day, the S&P 500 dipped down to the 61.8% Fibonacci retracement level before reversing and rallying into a positive close. This came amidst an increasingly negative environment… a contrarian “tell” that set up the current market rally.
So what technical levels should investors be watching on the S&P 500? Well, looking at the construct of the current rally, it is clear that some rest would be healthy after a five percent rally. 1420-1430 is a pivot congestion zone that should put up formidable resistance. More precisely, the 50 day moving average and 61.8% Fibonacci [up] retracement level reside at 1426, so keep an eye on the price action in and around this level. This would be an ideal spot for a rest.
A sustained move through this level would be bullish, while a move back below the 200 day moving average would return caution.
Trade safe, trade disciplined.
More charts found here.
S&P 500 stock market chart as of market close November 23, 2012. S&P 500 chart with technical analysis and key Fibonacci retracement levels. S&P 500 stock market analysis for month of November. Understanding technical support and resistance.
No position in any of the securities mentioned at the time of publication.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.