Earlier this week, I accomplished a “clear slate” train on the S&P 500 chart.

You see, my charts turn into fairly busy over time, as a result of I draw a number of pattern strains and put notes on the charts as properly. Mainly, I contemplate charts to be the best way you could have a dialog with the markets! And after some time, the dialog will get just a little muddy, and you could reset.

My regular S&P 500 chart seems to be like this:

Viewers of The Last Bar on StockCharts TV will most likely be very acquainted with this day by day SPX chart, as a result of we evaluation it on just about each episode of the present!

Each line drawn on that chart comes from some second the place, in reviewing the chart, I felt that I wanted to point a specific degree or pattern or sample. Over time, the chart can accumulate fairly a little bit of noise!

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So I saved a brand new model of this chart and went with a totally clear slate. Okay, I did add again the shifting averages and RSI, however apart from that it is fairly clear!

What jumps out at you as you are wanting and reflecting on the worth actions and value patterns? For me, I used to be instantly drawn to the upper lows from October to December to March. I drew that trendline first (dashed blue line), and it struck me that my first takeaway was the bullish sample of upper lows over time.

Subsequent, I seen how we have been approaching the February excessive round 4200, so I drew a dashed pink line to point this vital resistance degree. It seems Thursday’s shut was virtually precisely at this degree, after which Friday’s drop pulled proper again beneath 4200.

Lastly, I seen the symmetry across the 4100 degree. The S&P 500 hit 4100 in early December of final 12 months, and I might argue that February’s run to 4200 was primarily a failed try to interrupt above that December excessive. We spent a lot of the final six weeks sitting proper round 4100, in order that trendline was added subsequent.

I sat again and reviewed my trendline evaluation, and realized that I used to be lacking one of the vital efficient methods to determine potential assist and resistance ranges between two excessive costs: Fibonacci Retracements. When a market has established a big excessive (SPX 4800 in January 2022) after which a big low (SPX 3500 in October 2022), Fibonacci Retracements can assist to anticipate the place the market could retrace as the worth makes an attempt to push greater and regain the earlier highs.

Once I utilized the Fibonacci ratios to the chart, I remembered why I used to be so targeted on the 4000 degree within the 4th quarter of final 12 months. This represented a 38.2% retracement of the 2022 vary and appeared to be a possible upside goal on the preliminary rally off the October lows.

Certain sufficient, we hit 4000 in November and spent about 4 weeks chopping round that value level. After we lastly noticed a follow-through transfer above 4000 in January, that opened the best way to the 50% degree round 4155, which was reached in early February.

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For the final six weeks, we have been speaking concerning the S&P 500 hitting 4200 and whether or not it may possibly eclipse the February excessive. This chart now jogged my memory that the 50% Fibonacci degree was additionally at play right here, and getting above 4155 was an vital milestone as properly.

So if the SPX does certainly energy above the February excessive subsequent week (nonetheless very a lot an open query for my part!), what is the subsequent upside goal?

A 61.8% retracement of the 2022 selloff would take the SPX to round 4310. That’s just about precisely on the August 2022 excessive! Right here, we’ve a “confluence of resistance” the place conventional assist and resistance evaluation aligns with Fibonacci retracements. Based mostly on the slender management in 2023, and the anemic breadth situations persisting by this week, I might anticipate a transfer above 4300 to be extremely unlikely.

What if the S&P 500 index fails right here and pushes again decrease? Properly, we’ve loads of assist ranges and Fibonacci ranges beneath the present value, together with the 4150 and 4100 value factors. I am instantly drawn to 4000, which represents a “confluence of assist” based mostly on Fibonacci evaluation, the 200-day shifting common, and the trendline we talked about in the beginning of this text.

There may be loads to be bullish about, with sturdy uptrends in lots of equities and our Market Pattern Mannequin remaining bullish on all three time frames. However, when markets are going through vital overhead resistance, I’ve to query the chance vs. reward at present ranges.

Wish to study extra about Fibonacci in a helpful video format? Head over to my YouTube channel!

RR#6,

Dave

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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 methods ought to by no means be used with out first assessing your individual private and monetary scenario, or with out consulting a monetary skilled.

The creator doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the creator and don’t in any method characterize the views or opinions of some other particular person or entity.