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Moby Waller
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Moby Waller is a former CBOE Market Maker floor trader and off the floor London-based European Index Options Trader. He is co-Portfolio Manager of the ETFTRADR http://www.bigtrends.com/etftradr-advisory-service/ & Rapid Options Income ROI... More
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  • Key SPX Fibonacci Retracement, Support And Percent R Levels To Watch On This Pullback 0 comments
    Jun 6, 2013 9:19 AM | about stocks: SPY

    Since the market began its latest trend rally in November 2012, we've had several pullbacks. Each of these was very rapid in nature and not very deep - reversed back higher quickly. Now, we're in the midst of another pullback - with news from Europe and the US (and Japan/China) looming before the end of the week. What are the key levels to watch on the S&P 500 Index (SPX) (NYSEARCA:SPY) and the market (NYSEARCA:DIA) (NASDAQ:QQQ) (NYSEARCA:IWM) going forward?

    See the SPX Daily Chart below with Fibonacci Retracements, Support/Resistance Levels and Percent R. We've added a new Fibonacci Retracement from the Nov 2012 SPX low of 1343.35 to the May 2013 high of 1687.18.

    Note the previous pullback we had in April of this year, after the market had made new all-time highs at 1593.37 (and amid terrorism troubles and a huge plunge in Gold) - at that time, our analysis pointed to 1534 and 1497/1500 as the first likely potential bottom/reversal points on that downtrend. In actuality, the SPX bottomed quickly at 1536 and resumed going higher.

    In the current case, the question is whether this trend of quickly reversing higher will continue - seen clearly by Percent R on the following chart (but do note the worsening Percent R move on each pullback). At this time the default underlying trend has been higher, so you have to lean to the side that we will bottom fairly soon and at least consolidate sideways if not move higher.

    But what are the key levels to look at for the SPX if we do keep going lower - see the chart below (if you click on the chart it brings up a bigger version of it):

    SPX Daily Chart
    (click to enlarge)

    The first major signpost is basically upon us already - with the SPX closing at 1608 on Thursday, we're already near the 1606/1600/1593 which is the first logical stopping point. So it is possible that the key bottom/reversal point is already nearly here.

    If the short-term downtrend accelerates rapidly (which doesn't seem likely at this time) or grinds lower in a choppy fashion (could occur throughout this summer, especially given the big up move the market has already made in 2013), keep an eye on the SPX 1515/1500 area - this would mark a 50% retracement of the November 2012 lows to the May 2013 highs.

    As we've discussed previously, a 50% retracement is something we see time and again on pullbacks with bigger trends and is a logical place for a pause - whether or not you care about or utilize Fibonacci Retracements, the 50% retracement is an "obvious" one that really can't be denied. It basically means that once a trend has given up half of its gains (or losses), that is a likely area to pause/reverse.

    Right now, we're focusing on that 1600 SPX round number as support (and the accompanying support around it). Remember also that big round numbers are important to the market as sentiment, widely followed, psychological importance and also as key option strike prices with large open interest - they often become self-fulfilling prophecies in a way. If things continue lower in the coming weeks/months, the 1500 level comes into view as a downside target.

    Finally a related side note on the CBOE Volatility Index (VIX) (NYSEARCA:VXX) - this measure of option implied volatility also shows expectations of forward volatility among option traders and the "fear" level. On the current pullback the VIX has reached near the 18 area - this was the basically the same high area reached on those quick pullbacks in February and April of this year. On the December pullback at the end of the last calendar year, the VIX quickly spiked to 23 before rapidly heading back lower.

    by Moby Waller
    co-Portfolio Manager, Rapid Options Income & ETFTRADR
    BigTrends.com
    1-800-244-8736

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