Saturday, January 30, 2016

SPX S&P 500 Daily Chart Fibonacci Retracements and Technical Analysis Explained for Recent 'W' Bottom and Wedge Patterns

The bulls mount a big up day on Friday with the S&P 500 gaining 47 points, +2.5%. Shorts were running for their lives creating bull fuel as they covered. Price is above the 20-day MA which is the first step in a recovery rally so watch the 1925 level and dropping. The DAX (Germany) moves above its 20-day MA as well. The blue Fibonacci lines are using the closing prices from the late-December top down to the low seven days ago and the brown lines use the intraday highs and lows. Interestingly, price is coming up on resistance at 1943-1946 which represents the 38% Fib retracement using the closing numbers and 50% Fib retracement using the wider scale intraday low. If price moves above the confluence of the 1943-1946 Fib's, then price will next seek the confluence at 1969-1978, from a Fibonacci price perspective.

The 'W' pattern bottom played out in textbook fashion. Remember, when a W forms under both the 50 and 200-day MA's that is especially strong for the bulls as Keystone pointed out at the time. The W has a bottom at 1875 and top at 1990, a difference of 115 handles so that targets 2105 (1990+115), which occurs in early November. At that point, the W pattern was resolved and if long you would want to exit expecting price to relax from that point forward, which it did.

Note the three blue dots; the dots identify potential price entries for scaling into a long position. Remember, chart patterns and behavior are the same no matter if you are looking at a minute chart or a weekly chart or a monthly chart. But for most any trend line breakout to the upside, or C&H or inverted H&S breakouts to the upside (from their respective base line and neck line), the three blue dots are a way of buying into the breakout. This technique is useful in day trading.

The first blue dot is where the position is bot on the breakout. After the initial pop, price will typically come back down for a back kiss of the breakout line to make sure it wants to head higher. As price retests the breakout line and bounces, that is another buy point for the stock since it was a successful back kiss for the bulls. Then it is best to wait and if price breaks above the initial price peak after the breakout (thin blue line), and in this case it did, so that is the third buy point. So if you commit to scaling into a long say with four entries, that would be three and then once price jumped it could be chased to have the entire long position in place. Then once the W pattern target was hit at 2100 and higher, 'git outta Dodge, git while the gittin' is good'. The position can be liquidated or sold off in two or three trades scaling-out.

The red rising wedge is a bearish pattern as price forms the apex of the wedge and boom, a spankdown occurs due to the overbot conditions and negative divergence (red lines). For the green falling wedge, that is a bullish pattern as price falls into the apex of the wedge. The indicators are oversold but not the money flow. The RSI, histogram and stoch's were positively diverged bouncing price higher but the MACD line and money flow likely want price to come back down again. The pink sideways triangle breakout targets about 50 handles of upside which is in that 1943-1950 range.

The indicators are all long and strong so higher prices are likely in this daily time frame after any pull back would occur. Price may want to come back down to test the 1914-1925 range back kissing the 20-day MA before proceeding higher. Price is so close to the 1943-1946 Fib range target that it would be prudent to print in this range and test this area first then perhaps the move lower to test the 20-day MA support. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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