I found a Bloomberg video clip today talking about the Fibonacci levels on the S&P. This mathematical sequence makes up a spiral.
"The first number of the sequence is 0, the second number is 1, and each subsequent number is equal to the sum of the previous two numbers of the sequence itself, yielding the sequence 0, 1, 1, 2, 3, 5, 8, etc." Wikipedia"I'm thinking anything that moves in a continuous cycle with momentum can be measured by this sequence which is why it works well as a technical indicator in the stock market. The sequence is found in shells, sunflowers, pine cones, and even leaf arrangements. I would even bet you that weather patterns and mood swings have the pattern. Tell me if I'm wrong. It's crazy because once the trend breaks the 100% level a new 61.8 - 38.2% level is created which explains the infinite spiral. Trading bots are all over this. Anyway here's the clip.
Here's a short and long term chart of the S&P with Fibonacci levels. It looks like the S&P broke the 50% retracement level at 842, tested the 61.8% level at 818, and then rallied back slightly above the 50% level. There is also decent historical support at the 61.8% 818 level, where Roger Volz of Hampton Securities thinks the S&P is headed. He mentioned on Bloomberg: "Anytime you break a level, it does open the risk for follow through", "at this point, there is probably more risk, given the weakness in the financial sector". I'm thinking he was talking about the break in the 50% level.
Looking at the long term chart below it looks like the 61.8% level is at 1060 or 25.7% higher from here. So if the S&P did in fact put in a sustainable fib low at 741, or even retests it, the bulls could have Fibonacci on their side soon. But it's all about timing..! Charts from Stockcharts.com.
S&P w/ Fibonacci Levels (2 Years)
Looking at the trends, the S&P is in a 1 month downtrend and today there was a bullish tail put in on high volume probably because Congress passed the second release of the TARP. There has also been volatility in the financial sector with Citigroup falling apart before earnings and Bank of America getting aid and asset guarantees. Implied volatility on XLF was up 14% yesterday to 86% (via ise) but nowhere near the 130 highs. Option volume exploded (550k vs. 242k avg) probably pending a big move on Citi's earnings tommorow. XLF closed down on higher volume. Watch the video via Tech Ticker with NY Times columnist Joe Nocera. Also Obama's inauguration is in a week so things could get volatile. Dow futures are up 92 and S&P up 9.70 at 4:45am... We'll see what happens.
