SPY: Falling through support

Let's look at the longer view on the weekly. Last week was a big red pepperoni and this looks like a subtle warning ala Mamis. Strength in the US dollar was required for such a move lower in the stock market, so we continue to watch the DXY to stay above $76.00 and preferably $76.30.

The chart is necessarily busy and shows Elliot wave 5 resolving the motive with last week's high. Also, both Fibonacci price retracements and time extensions are depicted. Eighteen weeks passed from the March low to the July low. The July low resolved upward after the fake out a-b-c reversal. November 13 will be exactly 18 weeks from the July lows, so following the Fib time extension, this should be a significant date.

In July, the pullback was less than 38% and this pullback should be in that neighborhood if we follow Fibonacci rules. That would give us a target of about $95 on November 13th, which sounds like an aggressive pullback. We'll see.

The dotted red trend line is from the March lows as is the solid red trend line.

How far will XLF correct?

It's chart voo-doo time.  Let's look at the Fibonacci retracements that have occurred on the XLF since the March 9th low.  There have been 3 fairly classic 23.6% retracements and each time the sector index has recovered nicely to achieve a new high.  Now we are at the 4th successive 23.6% retracement, which of course is deeper than the others.  Will it hold, or are we due for a more precipitous drop?

First bounce off the March 9th low was solid although we heard all the calls of the "dead-cat" bounce.  Remember this was precipitated by Citigroup stating that they have been profitable for the first quarter.

Second retracement after a nice recovery from the first correction.

Third retracement is deeper, but not alarming and a classic bounce with a more sustained rally.

Now we are at the fourth retracement since March 9th and the XLF is at the 23.6% retracement.  We have done a lot of work to get this far with almost 50% appreciation of the sector.  Big news from Citi and a huge injection by the Fed this week helped the burst.  With Friday options expiry coming into the weekend, I would expect a pull back to 50% Fib, which would also coincide with the 50 dMA at 8.25.