Fibonacci numbers work unless they don't

My early November post drew a line in the sand at around 1340 plus or minus a few points.  If you were aggressive  you could have tried to catch that knife at 1384 which was the first Fibonacci retrace at 38.2%.    Unfortunately, that first level left many with a few cuts I 'm sure.  If you obeyed your stops, you were not left with stumps albeit a bruised ego.

The next Fibonacci level of 61.8% seems to have done the trick last week.  If you eased into the market, you were pleasantly surprised today when it gaped up 10 handles and continued on it's merry way closing up almost 2%.  That was quite a gain so if we can begin metering this Holiday rally it would give us a more sustainable up-trend.  The main trick to knife catching is obeying your stop loss price so you have enough fingers to attempt the following catch.

The only fly in the ointment is if we get some nasty macro news like the middle east getting out of hand or the fecal cliff discussions turning south.  Then this could be a dead cat bounce and the O'Neil methodology about waiting four days after the first serious up day, like last friday, would prove itself yet again.  On the other hand you would have possibly missed a $30+ gain in $AAPL today.

There is a funny image of a "Dead Cat Bounce"  at 

http://guidepostings.blogspot.com/2008/12/dead-cat-bounce.html

Bigger picture on the $SPX not bad yet

If we take a step back and look at the $SPX on the monthly view, we see that the MACD has been embedded up at the top and wanting to begin a downward move now.  Looking back at 2005 we can see that the MACD didn't fully cross, but when it does, look out below.  I hope QE3 will have enough gumption to continue an upward trend albeit another 6-9 months.

If we step in a little bit, the weekly MACD has crossed but there is still a possibility of pulling out of this at the 200 daily moving average or the 40 week line.  The trend lines are comfortably below us so there is no reason to believe the Mayans got it right for the end of this year.

Catching $SPX knives

Looking back at the Shooting Star post back on Sep 17th we can see that we are nearing the 50% retrace of the Summer's move and could be ready to attempt a holiday rally anytime soon.  Keep your eye on the 62% retrace which is in the 1338 - 1346 area.  If that is breached then we are in for some pain but you have to keep in mind that the Bernank's sugar will be absorbed into the system soon.  Will we bounce tomorrow?   If you are attempting to catch knives, pay attention to your stops so you have enough fingers and capital to participate in the ho-ho rally.