Playing Fibonacci Ping Pong

08/02/2010 10:43 am EST

Focus: STRATEGIES

Corey Rosenbloom

Founder and President, Afraid to Trade

If you’re feeling as though the market is bouncing aimlessly up and down, you might be right, but in these times, it’s often helpful to draw classic Fibonacci retracement grids to help you determine what levels the market might “ping pong” off of.

Here, let’s take a look at the dominant short-term Fibonacci retracement levels currently in the S&P 500:


Click to Enlarge

I started the Fibonacci grid at the 2010 price high on April 26 at 1,219 and ended the grid with the July 1 low of 1,010.

From that, we see the respective 23.60% (a lesser-known number), 38.2%, 50%, and 61.8% retracement—all of which are standard in most charting platforms.

Does that help us make sense of the ping pong? Or at least, does it at least tell us where the walls are in the game? Sort of. Fibonacci is not magic, but price does tend to react time to time from these levels.

Not to the penny, of course, but enough to give us a reference where we can monitor our lower time-frame charts, so we can see if there are any divergences or other signals that appear at one of the key price levels.

For now, the market is literally ping ponging between the key 1,115 price and 1,090 level—both important Fibonacci retracements.

A pong above 1,120 likely pings the market to 1,140, just as a ping under 1,090 pongs the market to 1,060. (That was my attempt at ping-pong humor.)

I suggest keeping these price levels handy in the week ahead.

By Corey Rosenbloom, trader and blogger, AfraidToTrade.com

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