Major S&P 500 Fibonacci Retracement

The major indexes managed to close the week with a gain but were it not for Thursday’s short squeeze it could have been a much different story. The markets shook off a GDP number on Friday that was better than the consensus but far below the whispers circulating on Wall Street. The first look at the GDP for Q2 showed a headline number of -1.02%. This was much better than the -6.43% in Q1 and better than the -1.6% consensus estimate. You would think the markets would have celebrated.

Instead the markets dipped at the open because the GDP was much lower than the +1.0% to +1.5% whisper numbers making the rounds in the pits. Also, the report also showed a revision to the Q1 number from -5.49% to -6.43% and nearly a full point worse than originally thought. So, you think that this minor -1.02% number is going to get revised down…of course it is! But, the media is so great at making believe one thing over another that most of you out there miss the underlying facts – which of course is why you read this site.

Now to the chart of the S&P 500 below:

As you can see we hit the 38% retracement level almost exactly this week on the daily chart. You can’t see it on the chart but this Fibonacci retracement series goes back to 1974! That’s more than 30 years of data building this case! Point blank, the markets are way overbought and those who remain long will get burned sooner than later. When everyone is talking ultra-bull, that’s when real traders turn bearish.

Of couse as option writers, we have no preference on the market direction because we make money regardless of the direction. Just a perk I guess!