Potential Pullback Targets (by MoneyMiser21)

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Where do we go from here?

If the long forecasted sell-off has finally arrived, where does the chart tell us we go from here?

First a note of caution. While the /es broke beneath its prior support 1961.50 (Week of December 15, 2014), it has not closed a weekly candle beneath it yet. A close beneath would be a stronger price action clue. Also, it would be stronger for the bears if we would rally back up to re-test that 1961.50, then fail to hold trade at or above it.

Now to the bear dreams.

The first and most obvious target is the low from October 2014. The /es closed more than 78.6% of the way there on Monday. Such a deep retracement places the odds higher on a re-test of that low, instead of a sustained bounce.

To the larger picture, we’ll use the low from October 2011 (Ebola, 1st Greek crisis, Debt ceiling), and draw a fibonacci retracement up to the all-time high at 2134 from May.

1. At the 38.2% retracement, we find two interesting rejction points from the weeks of Sept. 16, 2013 and Feb. 3, 2014.

Those two points, combined with the 38.2% level give us a range of 1726-1732.

2. The 50-61.8% retracement level is much more interesting for several reasons.

a. The 50% is at 1601, and just above the prior all-time /es high from October 2007 (1586.75).

b. The range between 50-61.8% encompasses much of the high range from 2007, and several touches from 2011 and 2012.

c. The 50-61.8% retracment zone is considered to be the optimal area for a pullback to bounce from in a number of technical analysis strategies that use fibs.

3. A special case for 1374.50

a. We have several rejection touches over multiple years at this area (week of Aug. 13, 2007, Week of May 2, 2011, Week of Nov 12, 2012)

b. It rests in-between the 61.8% and the 78.6% retracements. That area is often described as a “trap zone” where larger traders run stops of more novice fibonacci users who place their stops too close to the 61.8% level.

In any case, the bears must first close a weekly bar/candle beneath the December 2014 low (and ideally the October 2014 low) to trigger the first of three steps in a trend change. Those of course being:

1. Break and close beneath prior structure support

2. Re-test and fail to trade higher

3. Break to new lows