Mr. Arbeter discusses the recent price action in the SP, QQQ, market breadth, investors’ sentiment as manifested in the RYDEX bull fund, as well as, the COT data which support further gains in the bond market.
A couple of the major indices hit Fibonacci extension targets over the past few weeks and may be the technical reason that the market has had a tough time making anymore upside progress. At least we haven’t seen any downside progress either, unless you look at the small and midcap indices as well as a fair amount of S&P sectors and individual stocks.
These targets are based on the depth of the “V” bottom back in early 2020. Once an index or individual stock breaks out to all time highs, there is no chart resistance or supply overhead as every buyer of the asset is sitting with a profit. Therefore, potential targets must come from other technical tools like trendlines, the top of a channel, and Fibonacci extensions based on the size of the latest reversal formation.
The S&P 500 hit 4,343 in early July, which is a 79% extension of the size of the “V” bottom. There are numerous Fibonacci extensions including the range between 62% and 79%, then comes a very common 100% extension. After that, we have another range between 127% and 162%. If that area is broken, the next area is 200% with the next range being 227% to 262% extensions. These continuations are also used to project downside moves based on the size of the market top.
For the “500,” the next potential target is a 100% extension up near the 4,600 area. The other index that hit a price target recently was the NASDAQ 100 (QQQ). The QQQ’s reached a 100% extension on July 7 of 341 which was based on the size of its recently completed bullish ABC reversal that the ETF traced out between March and May. The next target is a 127% extension up at at 374.
Looking at the NASDAQ Composite, initial targets based on the size of the recently completed bullishascending triangle would be a 62% to 79% extension targeting the 15,300 to 15,600 region.
Conclusion: With what seems like an endless liquidity pump from the Federal Reserve, despite some hot economic data, it’s difficult to imagine the market getting hit real hard. However, and anecdotally, I’m getting that queasy feeling that at least a decent shakeout isn’t too far off in the future. And no, this is not based on any vacation plans, which almost always seem to coincide with a big price movement one way or the other.