Daniel Urdaneta

Fibonacci Levels to watch on SPY (Caveat emptor: tough trading)

And.. the much expected correction on SPY             finally started, with the two worst trading days of the year by far. 2.2 trillion USD was wiped out from global equities this week. This kind of traumatic incident usually has devastating consequences for some market participants: think, for example, of sellers of puts ( esp             . those with deficient delta and gamma hedging); they usually end up being short of contracts that are growing three and four-fold in price in just two days.. that's a big mark to market hit for anybody, even a Street trader!

I think there are going to be tough times to trade ahead. I will place limit orders on the selected levels based on likelihood of trading above or below the level in subsequent days. Market orders are a guillotine on this market: combine low liquidity, high rate of upticks/downticks, and the psychological impact of high volatility , and it makes sense to drop these kind of orders altogether.

The correction has much more to go: just look at the graphs of the Dow Industrials             (INDU), Dow Transports ( TRAN             ), and any equity index chart from around the globe: on some Emerging Markets, such as Brazil, the correction from recent tops amounts to losses up to 52% in market capitalization. Ouch. And SPY             is "only" 7% from its all-time highs.

VIEW: Neutral to Short.

Strategy: Short limt orders on upper Fionacci levels (201.61 and 206.26). Trying small longs from lower Fibonacci levels (197.85 and 194.09). Zero trading on market orders.

Other levels to watch: 200.00 (round figure and S2 on Daily Chart ). 205.32 (S1 on Daily Chart , another potential resistance zone from now).
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