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When a healthy coincidence of Fibonacci price relationships come together within a relatively tight range, the price cluster identifies a key price decision -- and I'm seeing such a confluence in Financial Select Sector SPDR (XLF) right now. In this case, the price cluster zone comes in between $14.81 and $15.04. It includes the coincidence of at least six Fibonacci price relationships, and they are as follows.
- 100% projection of the Aug. 25, 2010 low to the Feb. 18, 2011 high, projected from the Oct. 4, 2011 low
- 0.618 Fibonacci retracement of the Feb. 18, 2011 high to the Oct. 4, 2011 low
- 100% projection of the Oct. 4, 2011 low to the Oct.27, 2011 high projected from the Nov. 23, 2011 low
- 1.618 projection of the Nov. 23, 2011 low to the Dec. 7, 2011 high projected from the Dec. 19, 2011 low
- 1.618 extension of the Aug. 31, 2011 high to the Oct. 4, 2011 low
- 1.272 extension of the Oct. 27, 2011 high to the Nov.23, 2011 low
The one projection that really stands out in this group is first one -- the 100% projection of the Aug. 25 low to the Feb. 18 high, which was $3.91, projected from the Oct. 4 low. So far, at the recent high, the swing from the Oct. 4 low has been a $3.92 rise. That is symmetry, which in my world means similarity or equality of swings in the same direction. There is even another symmetry projection from the Oct. 4 low that overlaps the first one.
Now this does not tell me we will definitely see XLF roll over and die. What it does tell me is that, if the XLF does not take out that zone, it will be an important area to watch for a possible failure and pullback.
Depending on the time frame you like to trade, you might just want to let it correct and then go back in on the buy side. You might want to tighten up stops if you are currently long XLF, rather than give back profits. Some of you might even want to use the area for a short sale. A failure to clear this same key zone could also give you a heads-up for a possible corrective declines in some of the stocks that are contained in XLF.
If this fund ends up clearing this key resistance decision, there won't be any other real hurdles in the way of a continued XLF rally for a quite a while, from what I can see. Let's see what the market decides to do around this key price cluster zone -- and then listen to what it tells us!
