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I not too long ago posted a video on four potential paths for the S&P 500, from the very bullish (S&P will get over 4800 within the subsequent six weeks) to the very bearish (S&P breaks beneath 4000). Right this moment, I wished to dig just a little deeper into utilizing Fibonacci retracements to determine potential draw back targets and talk about why 3800 might develop into an eventual low for the S&P 500 index.
Fibonacci retracements are a little bit of a subjective measure. Whereas there isn’t any actual wiggle room within the values used within the calculations (61.8%, 38.2%, and many others.), there may be loads of subjectivity when it comes to which ranges you assign as 0% and 100%. In my recent notes on the S&P 500, I have been utilizing the September 2020 low and the January 2022 excessive as the value extremes. This leads to a 38.2% retracement stage proper round 4200. That is proper, the 4200 we simply barely reached earlier this week.
The final method to Fibonacci evaluation is that you simply count on help on the first stage. If and when that stage is breached, you utilize the subsequent stage as your new goal. So that will imply that, if 4200 is damaged on a closing foundation, the subsequent draw back worth goal could be the 50% retracement stage round 4000. If 4000 would fail to carry, then the subsequent draw back goal for the S&P 500 could be round 3800, which might characterize a 61.8% retracement of the September 2020 to January 2022 rally.
However what if we use the March 2020 low as a substitute of the September 2020 low because the 0% stage? Now we’re wanting on the entirety of the 2020-2022 bull market section. Utilizing these new excessive ranges, we arrive at a 38.2% retracement stage proper round 3800. That is virtually an identical to the 61.8% stage we talked about earlier. 3800 would additionally characterize a drawdown of simply over 20% off the January peak at 4800 and would imply the S&P could be dangerously near the dreaded “bear market” stage.
With the rally into Friday’s shut this week, many will probably be speculating that that is yet one more “purchase on the dip” second amongst many we have seen throughout this bull market section. However deeper and extra painful corrections normally appear like this simply earlier than issues begin to get actually ugly. Is it the probably state of affairs? Maybe. Is it a really actual risk? Completely. And conscious traders all the time contemplate all of the potential outcomes!
Wish to see extra on 4 potential future paths for the S&P 500 index, and what they could imply on your portfolio? Try my YouTube channel!
RR#6,
Dave
P.S. Able to improve your funding course of? Try my free course on behavioral investing!
David Keller, CMT
Chief Market Strategist
StockCharts.com
Disclaimer: This weblog is for instructional functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your individual private and monetary state of affairs, or with out consulting a monetary skilled.
The writer doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the writer, and don’t in any method characterize the views or opinions of every other particular person or entity.
David Keller, CMT is Chief Market Strategist at StockCharts.com, the place he helps traders decrease behavioral biases via technical evaluation. He’s a frequent host on StockCharts TV, and he relates mindfulness methods to investor determination making in his weblog, The Aware Investor.
David can also be President and Chief Strategist at Sierra Alpha Analysis LLC, a boutique funding analysis agency targeted on managing danger via market consciousness. He combines the strengths of technical evaluation, behavioral finance, and knowledge visualization to determine funding alternatives and enrich relationships between advisors and purchasers.
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