BigTrends

I've been keeping an eye on this pattern for some time, and have written on it before.  But now we are imminently approaching a major 50% retracement test on the S&P 500 Index (SPX) (SPY).  Take a look at the following Weekly Chart, which tracks the 2007 high to the 2009 low and places Fibonacci retracement levels on it:



So 1,121.44 is the exact 50% SPX retracement level (we closed at 1109.30 on Monday night).  Besides being an important Fibonacci sequence number, this is also a generally known area of potential trend reversals.  Keep a close eye as we move in on this area ... we certainly could overshoot to the upside due to the market strength, but it definitely is a likely area of a market reversal lower (at least back down to the 1,000 area).

We've previously mentioned the long-term retracement rally that the market is having from the September 2007 highs to the March 2009 lows.  You can see the S&P 500 (SPX) Weekly Chart below with Fibonacci levels drawn from the High and Low retracement.

The market struggled a bit around the 38.2% retracement, but looks to have overcome that.  The obvious next target is a 50% retracement, which is 1121.  Keep an eye peeled as we approach that level.  The current rally looks to have easy upside to there, but that is a logical place for a pause and/or reversal lower.

SPX Weekly Chart

Many market technicians have been looking at the big picture retracement rally we have been in from the October 2007 market highs to the March 2009 market lows.

On the S&P 500 Index (SPX) (SPY) we recently rallied back to a 38.2% retracement of the highs.  This is a key Fibonacci number (for more info on Fibonacci numbers, see this Wiki entry).  Fibonacci sequences have been around since the 1200s, for more information on Fibonacci retracements see this article. 

Some Fibonacci followers thought we were stalling around the 1000 area as part of this retracement resistance (see the following chart).  But the rally over the past 2 weeks has broken above this potential resistance, in my analysis.

The next obvious upside target would be a 50% retracement from the 1576 SPX highs to the 666 SPX lows ... right around 1121.  50% retracements, in addition to being a Fibonacci number, are also a logical area for retracement rallies to stall out.  In my years of experience trading, I have seen 50% retracements occur many, many times ...  of course, we certainly could overshoot this to the upside, crossing up the technicians.

Bottom line to me is that we look likely to head to the 1100/1120 area, but in the big picture, we certainly are having a major rally within a bigger bear market selloff.  Continue to ride the market up while the uptrend is in place, but keep in mind that it won't last forever.