Last week I emphasized that the S&P500 was approaching an important congestion zone, formed by several powerful components. The S&P500, already significantly overbought at +3ATR, was crossing the zone between 4200-4300 that had stopped the decline between October 2021 and May 2022 and that now works as strong resistance. Only a few ticks above this range lay the SMA 200, an indicator widely followed by traders and considered a watershed between bull and bear markets. In the midst of the resistance zone (at the 4260 level), lies the 78.6 percent of the Fibonacci retracement, calculated from the lows of the Covid selloff. Tuesday’s false breakout, which failed just 1 tick below the SMA 200, triggered the correction, which, for now, has the characteristics of a normal correction in an overbought situation.

The bars on the chart are colored red when FGIC is -8 or lower (Extreme Fear) and green when FGIC is +8 or higher (Extreme Greed).   [ Please follow these links: original and update explanations how FGIC works. ]

Further resistance was represented by the FGIC neutral zone, between +2 and -2, from where it was pushed back after stalling early in the week.

Next week it will be important to see the behavior of the S&P500 in the value zone, possibly with a V1/V2 trigger, and in any case not below the -1ATR, currently at the 4100 level.  Similarly, FGIC should not return to extreme fear readings (below -8).

Have a safe trading week,

Gianluca L.