S&P 500 Technical Picture

Everyday the market goes up.  You can close your eyes and buy anything and 24 hours later you will be richer than you thought.  This approach has been working non-stop since mid-Feb.  I will be the first one to fully admit that I did not see this rally coming.  Three times I tried to go defensive through SPY and IWM puts in last six weeks but that did not work.  


Nevertheless, as a trader I will trade whatever the market is giving me rather than what I think the market should be doing.  And using this approach, overall we have enjoyed excellent gains on many positions, some of which are still open and continue to perform.  


Right now, I am looking at S&P 500 larger technical picture using long-term weekly chart.  We live in a world today where billions of dollars are at disposal of computers at major trading desks that move the market based on complex algorithms and technicals studies.  In previous life, I have personally physically observed this happen in a few large hedge funds.  Leaving all fundamental news aside, these non-human traders have the tendency to crush anyone who gets on their way.  


The question is where will they put a stop on this rally (and perhaps start a correction).    

If you draw Fibonacci Retracements on SPY ETF from high of $157.52 during the week of 10/11/2007 to low of $67.10 during the week of 3/6/2009, the 61.8% retracement of the entire bear market decline ends at $122.98.  This level corresponds to ~1230 on S&P 500 index.  Interestingly, that level of 1230 also almost perfectly corresponds with 200-day moving average.  And lastly, it is this level of 1230 when Lehman Bros. filed bankruptcy and S&P fell apart.  I have highlighted this area with yellow circle on the chart.  


Traders have a lot of memory and attachment with this 1230 level.  Given my limited knowledge and understanding of technicals, my hunch is S&P will top out at or around 1230, and may start a correction as people who have been patiently waiting for a long time to recover their portfolios since Lehman bankruptcy finally get a chance to sell.  


If my theory is right, I expect a correction of 5-10% taking SPY back to 50% retracement level of $112.31 or 1120 in S&P 500 index.  This will be a refresh that everyone needs to re-charge for the next leg up.  


Good luck!