A Look At Fib Levels

While there appears to be continuing skepticism about the upside potential for the stock market rally, the stock market indexes are holding nicely above their respective Fibonacci retracement levels.

The Qs closed today at 41.48. The retracement levels are:

50% - 40.06
61.8% - 43.60

The SP-500 closed today at 1044.14. The retracement levels are:

38.2% - 1014.14
50% - 1121.94

The Dow Industrials closed today at 9627.48. The retracement levels are:

38.2% - 9422.10
50% - 10334.03

At this point, it would appear that the SP-500 will continue to move higher toward its 50% retracement level at 1121.94 representing a 7.45% gain from the current close. The Dow would gain 7.34% if it hits its 50% level, and the Qs would gain only 5.11% if they make it to the 61.8% level.

That brings up an interesting problem. So far the Qs have outperformed with a gain of 61.84% from the March low, while the SP-500 has gained 56.59% from the same low. If the Qs were to maintain the same level of outperformance and the SP-500 hits the 50% retracement level, then we would expect the Qs to top at 44.84, which is higher than the 61.8% level for the Qs.

So that leaves us with three possible outcomes: 1) the Qs continue to outperform and move above the 61.8% level of 43.60 to 44.84 or higher as the SP-500 and the Dow move up to the 50% level, which would be quite bullish long term, or 2) the Qs begin to lag the SP-500 and the Dow so that they all hit their respective retracement levels together, which is not likely, or 3) the Qs top out first and then the SP-500 and Dow top out later, or short of the their 50% retracement levels.

I tend to think that it will be either 1 or 3. At the moment, I would assume that case 1 will prevail until we see evidence to the contrary. Today's advance on increasing volume is encouraging.