In James Stanley’s previous article, he discussed about S&P 500 as support was evaluated at a 2,000 psychological level. Like what was mentioned previously, this region’s support gave multiple bounces, therefore traders should expect chop. However, the ‘big’ picture setup, which he talked about in his Q1 forecast, posited that there might have been a top in place at 2,137. And as the Feds are raising rates, this gave them a reason to setup the “big picture short position”.
To assess the potential top, Stanley and his team employed a Fibonacci setup from the Financial Collapse in order to get an extension. With a clean 1.618 extension from the Financial Collapse, it moved plots right at 2,138.54, which isn’t even 1.5 handles away from the tip that was setup in the S&P last May 2015.
This is actually not a good prognosis for a top or bottom. In theory, something might develop. But the lower-highs that were seen during the last half of 2015 and the one we see on the charts of August and September would give us an idea of the pain-threshold of the investors on the stocks.
Obviously, investors were scared. Although their fears might have mellowed down in September and October 2014 as the Fed talked about easy money, things have changed. Rates have recently increased. And the Fed is sticking to their vision of 4 rate hikes this year, while the rest of the world fears that this would be a disaster.
Traders may likely want to continue doing the same, approaching the stock market with a conditional set up that will let them sell if there’s a show of resistance. When moves like what happened last week in the stocks repeat again, many investors may abandon their better judgment for their fear of maybe missing a move.