Traders,

With stock indexes officially back in daily uptrends above the 50-day moving averages, it’s the bull’s game to lose. One way to measure their power is by the depth of the next retracement. Simply put, shallow retracements are more bullish than deep ones.

The logic is straightforward. In a strong uptrend, buyers don’t allow prices to retreat very far before stepping in. In a weak uptrend, it takes a deeper decline before buyers return. This is where the Fibonacci retracement tool can come in handy. A pullback of 23.6% of 38.2% would qualify as shallow. Those traveling 50%, 61.8%, or more are deep.

Given the current setup in the S&P 500, you can also watch how we behave around moving averages. If the next decline stays above the 50-day, that would be shallow and bullish. If we retreat to the 20-day moving average, it would be more concerning. Breaking the 20-day would invalidate the recent breakout and place us back into neutral territory.

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Video Of The Day: Jedi Options – Credit Spreads ATR Range

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Chart of the Day: S&P 500 ($SPY)

The Fib Retracement tool is a handy way to track the depth of the retracement. So far, the selling pressure has been minimal.

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