Market Milestones: Start Fibbing

Wednesday's decisively bullish move and bullish engulfing candle created critical levels that market participants can use for weeks to come. The market has been moving straight up and straight down since it peaked two months ago in July. The last two days saw a pretty vertical rally, and if recent history repeats itself, it may not retest as much as some bulls who are feeling FOMO, would like.

Let’s review the current levels to watch on SPY and QQQ. SPY has been the stronger index over the past two months and is only 1% away from a new all-time high. Wednesday’s bullish engulfing candle on SPY not only engulfed the prior two days, but it also nearly engulfed the last five days of price action. It bounced almost perfectly off the 100DSMA, confirming rock-solid support at $540.00. As long as the SPY stays above $540.00 in September, the trend will remain bullish. Targets for this next leg up should land somewhere on the overhead trend lines around $580.00-$590.00.

SPY

That all sounds great, but what if a trader placed their order exactly on the 100DSMA, at $538.50, and missed the last two days of this sweet, sweet bullish move? That undoubtedly happened to many, and likely some reading this right now. If they were subscribers to the RLT Newsletter, they likely got in early Thursday morning. But what about everyone else? First, anyone can and should subscribe to the RLT Newsletter for daily market and portfolio updates. Secondly, let’s review some retest levels on SPY and hopefully cure some of that FOMO.

The first major level on SPY to watch is the $549.00 horizontal support. This support/resistance level has been instrumental to this chart for months and just happens to coincide with the open of Wednesday’s massive bullish candle. Zooming in to the hourly chart, we see a pretty amazing double bottom with a neckline at, you guessed it, $549.00. That gives us two solid reasons why $549.00 is a key level, but are there more? Of course! Looking at the QQQ, we see that the 100DSMA and the 50% retrace of the prior two days’ move are at $463.00. This will act as major support on QQQ and lines up nicely with the $549.00 support on SPY.

QQQ

But what if the stars don’t align and the next move doesn’t decline to that prime and utterly sublime spot, to make your alerts chime? You ask, likely without the rhyme. Well then, it’s time to start fibbing.

Assuming SPY hits $560.50 in the next day or two before retesting, we can identify some reasonable levels SPY could retest over the coming week or two based on Fibonacci retracements. Once a retest starts, the Fibonacci levels can be adjusted to fit the exact move and provide more precision. This is simply a rough estimate based on a random resistance. The 23.6% retrace would bring SPY back to around $555.55, a significant level of support before it broke on September 3rd. The next key level, the 38.2% retrace, is at $552.78, which is exactly where Thursday’s candle bounced.

SPY Hourly

As long as SPY holds $540.00, the bullish thesis remains valid. If that level breaks in the next two weeks, something is wrong, and protection and stops will need to kick in. In an ideal scenario, SPY shouldn’t drop below $545.00 before hitting the aforementioned targets.