Bears are getting a bit nervous in recent days from the broad-based rally the markets have seen since the beginning of the month. The chart below incorporates the use of the Fibonacci retracement tool, which is very useful for measuring/predicting the extent of pullbacks in a bull market or rallies in a bear market. At this point I can’t say that I am all that surprised that we’ve gone as high as we have, thus the reason for why I have been hedging my short positions with one gigantic long one. But as you can see, the 61.8% retracement level will prove to be much more difficult to break through than it was to push through the 50% retracement.
On the last rally the market saw, we kissed the 50% retracement level before heading southward again – obviously this rally has gone a little higher up. But don’t try to guess the extent of this rally, it could go much higher then we expect and if that is the case, you don’t want to be blindly shorting this market in the process and hoping for the market to eventually validate your belief. Instead remain in control – slowly add positions as the market provides you with the opportunity, and continuously hedge yourself against such irrational behavior that the bulls may be exhibiting.
Here’s the S&P Chart Analysis.