Initially, the daily chart below easily shows the kind of damage todays selloff caused. Not only did the futures break and close strongly below the 50day moving average, the index also closed below its bullish trendline connecting lows from last October. This move is crucial and will likely lead to a further pullback to the area of the previous lows near 1350 if not the 100 day moving average near 1336. Additional weakness can be expected but it really depends on the force of what will happen in the course of the next few weeks or so.
The second chart below is a weekly of the same S&P futures dating back to the late 2010 lows. W weekly chart gives us a more intermediate to long term view instead of a shorter term view provided by the daily chart above. Although this chart shows no moving averages, it does show Fibonacci retracement levels corresponding to the late 2011 lows. Since technical analysis is fractal (something explored in a previous post about AAPL) looking at charts in different timeframes sometimes allows us to dissect the same information and patterns without all the clutter.
Taking out the daily gyrations of the stock market we can see here on the weekly chart that the area surrounding 1350 is really the line in the sane for either support for another move higher or failure down to the 1287-1300 zone. Actually, a Fibonacci retracement of 38.2% is quite normal in the course of a bull market and although it will scare the pants off some investors it would be healthy if reached in an orderly (not Flash Crash of 2 years ago - happy anniversary) kind of way.
So essentially 1350ish needs to be monitored, but more important (imo) is the area around 1336 which fits in with the 100day moving average on the daily top chart and the 23.6% retracement level on the weekly chart. Then possibly THE most important level to watch for the health of this bull trend to remain will be the 1300 area. Not only is that a huge psychological number but it also is the area near the 38.2% Fibonacci retracement.
Will we get there? In a way I am hoping no because it will be a scary ride, but yes because it will be healthy and give some people to re-enter at nice levels. Purely as a technician I believe 1300, or close to it, will happen sometime between now and July. The only thing that will change my mind from a longer term perspective will be new closing highs. Until then, there will be many opportunities, both on the long and short side, to stay active.
Don't hesitate if you have any questions or comments.
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