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Build Up Your Bearish Exposure

Fibonacci retracement levels illustrate why smart traders are going long more put options.


We recently talked about the S&P 500’s support and resistance levels and the key numbers we’re watching, but in this video we review why we’re taking on a more bearish stance in our trades – and you should, too.


We put a Fibonacci retracement level here. You can see that–and I know the type on this is a little small–this 23.6% level that is serving as support right along with the 1600 level. One other thing that we notice here is you’ve got this great uptrending support level that we’re hitting as well. If you break down and through all of these levels, then the 38.2% Fibonacci retracement level comes in at about the same point we were consolidating between March and April. So we could see a drop all the way back down to this 1550-1560 range if we break down through 1600.

And that seems fitting if we were to break through there, what we have seen the market do is it hit a low around 1350, then it moved up 50 points to find support at 1400, then it moved up here to find support at 1500. Along the way it did hit some resistance at 1450. Then we moved up to find support at 1550, then another 50 points up to 1600. So as we have looked at the moves of the S&P 500, it has been moving in increments of about 50.

So this is a level that we are watching very closely, and with this potential turnaround, one of the things we have been trying to do in the portfolio is to shift from a bullish or even more evenly split portfolio to a much more bearish portfolio.

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