BigTrends

We've been watching the big picture market retracement rally for some time.  From the 2007 S&P 500 Index (SPX) (SPY) highs to the 2009 panic lows, we've now regained a significant amount of the losses.  The problem?  The 50%, 61.8% and 31.8% Fibonacci retracement levels now become potential resistance levels to further market upside.

Take a look at the SPX Weekly Chart below that we've discussed previously:

SPX Weekly Chart


You can see that the recent market correction began after we approached the 61.8% retracement level around 1,228.  We've now busted down through the 50% level of 1,133, and look like a test of 1,014 (roughly 1k) is approaching.  One potential positive to note is that we are right around a key level if you draw a trendline of the lows from late 2009 -- if this area holds as support, we could see a weekly bounce to 1,150 or 1,200.  Remember though, that these are longer-term weekly charts and the trends are fairly wide as are the weekly high/lows.  That's why we utilize Hourly, Daily and even shorter-term charts to trade our Index Options Timer real-time trade recommendations.

We closed out the week at 10,998 on the Dow Jones Industrial Average (DIA) (DJIA).  This has been a key round psychological level cited by many in the financial media.  Certainly 11k may be an important level, but in my analysis we are also approaching a more important level.

On the S&P 500 Index (SPY) (SPX) Weekly Chart, we are approaching the next key Fibonacci Retracement Level from the 2007 highs to the 2009 lows.  This level stands at 1,228 (equivalent to around 122.5 on the SPY) -- we closed out the week at SPX 1,194 -- this gives around 3% more upside to the markets before we hit this key level.

The bottom line is that we have been in a strong uptrend, and "don't fight the tape".  We've been trading many more Calls than Puts in our BigTrends premium option trading programs for quite a while now.  However, I will be keeping a close eye as we approach DJIA 11k, SPY 120, and SPX 1225 (using rounded numbers), as these are the locations of a possible reversal lower.  Another further big target would be if the VIX touches down at the 15 area -- this was my 2010 low target on the VIX and a likely area for a bounce higher in volatility -- we closed the week at VIX 16.14.

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).

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.