The strong action in the US stock market this week suggests that the Spyder Trust (SPY) could close January at new five-month high. The monthly chart shows that while we exceeded the 61.8% retracement resistance from the 2007 high (point b) to the 2009 low (point c), we are still below the 78.6% retracement resistance at $138.26.
Using the rally from the 2002 low (point a) to the 2007 high (point b), the equality target from the 2009 low is at $147.55. We can also calculate the retracement resistance targets using the decline from point b to point c. The 127.2% retracement target is at $182.70.
Nearby targets can be determined using the decline from the early-2011 high at point d ($137.18) to the 2011 low at point e ($107.43). The 127.2% retracement target (in blue) is at $145.27, while the 161.8% target is at $155.65.
Clearly, the first major hurdle for SPY is the 2011 high at $137.18, and if that level and the 78.6% retracement resistance at $138.26 are exceeded, then the next major target is at $145.27.
The Powershares QQQ Trust (QQQ), which tracks the Nasdaq 100, is the only of the primary market averages that has exceeded its 2007 high. It is on track to put in a very strong performance in January.
Of course, we must remember that in March 2000, QQQ hit a high of $119.47 (point a), and it needs to move above the $70 level to overcome the 50% Fibonacci retracement resistance from the 2000 high to the 2002 low, point b. The 61.8% resistance level is at $81.70.
Looking at the rally from the 2002 low at $19.58 (point b) to the 2007 high at $55.07 (point c) and measuring up from the 2009 low of $25.05, the equality target is at $60.54. This level was exceeded the same week this lesson was published (Jan. 26, 2012). The 161.8% projection target (in red) is at $82.47.
Additional upside targets can be calculated using the rally from point d to point e and measuring up form the 2010 low (point f). This gives you an equality target (100%, in blue) at $67.15 and a 161.8% target at $82.97.
Though additional targets can also be derived, I find the cluster of upside target in the $81.70-$82.47 area quite interesting. Before they become really relevant from an investing standpoint, however, the 50% retracement resistance level at $70 has to be overcome. That is about 15% above current levels.