FIB, the SPY high, little friends and fat rabbits - by Grant C

Fibonacci sequence is a mystery to some, a curse to others, and a Godsend to a few. To me it's a marvel, as is the clarity of a bee's honey comb (natural Fib sequence). To embrace it, or to grasp the Golden Ratio, is to embrace the notion that the market has more symmetry than most are willing to admit. However, since I have centuries of French Catholicism locked up in my genes, it's easy to believe that sin and redemption, Good and Bad, are balanced, or symmetrical in human existence. Therefore, I expect to see repetitive patterns in human behavior as mirrored in our charts. After all we are measuring and exploiting greed vs. fear, as they constantly repeat, aren't we?

I regularly look for Fib retracement levels on the weekly SPY chart just as I look for OB/OS readings on the 5-week RSI and bullish/bearish divergences on the weekly MACD-H. These are my little friends, my play pals, the tools that for good or bad, profit or loss, I hang my hat on week after week. Last Friday, April 16, SPY traded right into the 85-87 range, which was the .786 Fib retracement from the Oct. high of 159 to the Jan 65 low. It also corresponded with RSI hitting OB, and MACD up there too. The little pals were tugging at my arm, whispering that the bear mojo was starting to stir. Weekly price was at a Fib resistance, 5-week RSI was OB and the rally was 6 weeks old, about right for some time symmetry.

The daily chart was just as vivid. Friday's price action was classic churning, lots of Sturm und Drang but in the end a Little Worm or false breakout. The daily momemtum boys--RSI, MACD and FI--pointed, respectively, to short-term overbought on the RSI, declining on the MACD, and a wimpy lack of juice on the FI. To make it more interesting, Friday was the intersection of some long-term trendlines. All my little pals, the ones I grasp when I shut my eyes and dive with Alice down the rabbit hole, said the same thing, buy the 2X inverse ETFs at the close. Along the way down, the hooka smoking catepillar flashed a smile and mouthed, "while your at it grab some of that 3x FAZ."

Now, of course, with the SPX down 37 points at Monday's close cash is the position of choice, the Mad Queen is strutting across the chessboard, the Greatfull Dead are on their way to Terrapin Station, and the little friends are skipping back to that magical place whence they came. We are left trying to figure out how far down is down for this retracement. For that I have no answer, but eventually, we'll get to OS and it will be time to rustle the leaves, play the flute, and invite the little friends to saddle up their hobby horses and go fat rabbit hunting again. But for now, I don't plan to buy the dips, but look for chances to sell the rips.