The timing seems just about right for a reversal or at least an attempt at one in the S&P 500. I say that because the latter half of this week marks a nice convergence of several key timing relationships including the 61.8% retracement in time of the May high to the August low, the 61.8% extension in time of the August and September lows and a measured move in time of the August – September rebound. Any one of these is probably important enough to warrant some caution, but their close proximity increases the potential for a reversal in stocks. The real question for me is from where? The index has really struggled this week near 2039/42 which is the 4th square root relationship of the year’s low and the 2nd square root relationship of the year’s high as well as the range low for the first half of the year. It is a clear potential point of failure. The other potential reversal point is the 2060/75 zone which includes the 200-day moving average, the 78.6% retracement of the year’s range and the 261.8% extension of the September range. Traction above there and chances of a reversal over the next few days diminishes greatly in my opinion.
I like getting short a half position in the S&P 500 just ahead of 2040 and another half around 2060 over the next three trading days. A daily close over 2080 would force me to reassess.
