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Another Angle on Levels


I see a ton of different important index levels bandied about from the sell-side and from traders. Many times they are different and based on a wide array of dissimilar factors. Here's something simple that I do to determine an important level - beyond the obvious past support and resistance levels - for, in this case, a correction (if that is in fact what we are doing here). I look at the history of the rally, for this one from the early March lows. And take a mean, a median, a high, and a low of the % corrections that the index has exhibited, then apply it to the recent high to see what a theoretical target on the downside would be if this correction was similar statistically to the corrections the index has shown in the run.

For the SPX the mean (and median for that matter) correction was 4.6% in the four instances we can identify since March. The low correction was 3.5% and the high correction was 5.8%. That gives downside % targets for the SPX of 975, 964 and 951 for the low, mean, and high correction target based on the 4 corrections shown in this runup. The average number of trading days it took for these past corrections? A touch more than 5 days. Of course, this analysis suffers from the small sample base (only 4 corrections), so it is rough, but I have found it useful in the past for comparison purposes against the many levels I see bandied about.

For the NDX the levels are: 1239, 1223, and 1204 for the low, mean, and high correction targets, with past corrections occurring about 4.5 days on average.

Though today's (and yesterday's) tape feels impulsive like a correction, the jury is still out, as this market has had more legs than the Rockettes. These are the levels I keep handy to determine how any unfolding correction looks compared to this bull run's brethren. Hope they help.
position in SPX and NDX

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