Fibonacci Retracement on S&P 500

The Fibonacci retracement is very useful tool for stock traders to identify strategic places for transactions to be placed. Stocks will often pull back or retrace around a percentage of the previous move before reversing. Four levels of the Fibonacci retracements often occur, and they are usually at 23.6%, 38.2%, 50%, and 61.8%.

Let's first take a peek at the 2-year S&P 500 Chart below. From its high at 1576.09 points to the November low at 741.02 points,
1. The Fibonacci retracement of 23.6% is at 938.10 points
2. The Fibonacci retracement of 38.2% is at 1060.02 points
3. The Fibonacci retracement of 50% is at 1158.56 points

At 938.10 points or 23.6% retracement level, although the high on that day broke the level, S&P 500 closed below this level on January 6, 2009, and the short term bullish trend reversed.

At 1060.02 points or 38.2% retracement level, the S&P 500 failed to break through on Oct. 14, 2008, and the trend continued until it hit the low in November.


Let's then have a look at 3-month S&P 500 Chart below for the shorter term trends. From its November low at 741.02 points to the high on January 6 at 943.85 points,

1. The Fibonacci retracement of 38.2% is at 818.50 points
2. The Fibonacci retracement of 50% is at 842.44 points
3. The Fibonacci retracement of 61.8% is at 866.37 points

S&P 500 was not able to close below the 50% Fibonacci retracement level on the last two trading sessions. The Friday's close above might have confirmed the reversal of the down trend. Should it close below 50% retracement level, we would have to see the index re-test the 38.2% level where there were only 4 sessions closed below the level.


Generally speaking, the longer term retracement levels are more reliable compared to short term ones. Short-term Fibonacci retracement levels should be used with the oscillators and moving averages.