For those familiar with the Fibonacci parameters, we can quickly take a look at some areas this selloff could go to. But before I do that, I want to highlight how precise the rebound was to specific Fibonacci levels; in this case to the 61.8% retrace of the ENTIRE 2+ month selloff.
[click any chart to enlarge]
In a technically driven, computer operated market I think more and more people begin to follow these ideals, and they self reinforce. Of course you don't know WHICH of the levels (38.2%, 50%, or 61.8%) will be the eventual level a bounce or retrace goes to, but it helps you map the market to a degree, once a move begins in a certain direction.
Now as for the pullback of this multi week rebound, we can see we are not even yet at the 38.2% retrace which would take the S&P 500 down to 1326-1327ish. That would be the preferred pullback for the bull case, but a 50% (less bullish) to 1315 or 61.8% (least bullish) to 1304 are also possibilities. A break of the 61.8% retrace of this multi week bounce and one would opine that the FTD day and bullish action is negated, and we're back into a larger correction mode. Hence, it is very important to monitor the nature of this pullback… I was hoping it would be boring, but obviously that is not the case. Even today's heavy selling is going to be marked as a distribution day and potential change in condition of the follow thru day.
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