MW The S&P 500's rally stalls at the key Fibonacci target. What that means for stocks.

By Tomi Kilgore

The benchmark index has flirted with - but has so far failed to close above - a key Fibonacci retracement target. Until it does, the downtrend is still alive.

Is the S&P 500 index's recent rally real, or is it just a bear-market bounce?

That's always a question investors have when the market is rising after a significant selloff. Given all the uncertainty regarding tariffs - as U.S.-China trade talks kick off on Saturday - and worries about the economy, that question becomes even more important.

While the S&P 500's SPX selloff, from its record close of 6,144.15 on Feb. 19 to its one-year closing low of 4,982.77 on April 9, didn't quite meet the bear-market criteria of a 20% decline - it only fell 18.9% - it was certainly significant.

On Friday, the index closed 13.6% above the recent low, which is also a rally significant enough for investors to question whether a new uptrend has started.

So how do chart watchers answer that question? They use math - and nature.

The math is based on a number sequence made famous by the 13th-century Italian mathematician known as Fibonacci of Pisa, in which you get the next number by adding up the previous two. It goes: 1, 1, 2, 3, 5, 8, 13, 21, and so on.

The longer the sequence goes, the closer the ratio of the latest two numbers gets to the Fibonacci ratio of 0.618.

This is where nature comes into play, because Fibonacci found the pattern to be prevalent in natural systems - including sea shells, the breeding patterns of rabbits, a galaxy's spiral and the human body.

Because many on Wall Street see the behavior of financial markets as an extension of their living participants, naturally, chart watchers adopted the Fibonacci ratio as a guide.

The idea is that if a bounce surpasses 61.8% of the selloff that preceded it, then it's no longer governed by the selloff, meaning it's likely a new uptrend. The next upside target becomes a full retracement of the previous downtrend.

For the S&P 500, the 61.8% retracement of its 1,161.38-point drop, on a closing basis, to the April 9 low comes in at 5,700.50.

Since Fibonacci levels offer a point of reference during uncertain times, they often provide resistance on the way up and support on the way down.

On May 2, the S&P 500 coincidentally reached an intraday high of 5,700.70, just a hair above the Fibo, before pulling back to close at 5,686.67.

Then on Thursday, the index climbed to an intraday high of 5,720.10, but a final half-hour selloff pushed it down to 5,663.94 at the close.

The S&P 500 closed Friday down 0.1% at 5,659.91, but was up as much as 0.5% earlier in the session at the intraday high of 5,691.69.

All that means is the index is still just bouncing, and the downtrend is still alive.

The S&P 500 needs is a little push - about a 0.7% gain - for many chart watchers to deem the rally real.

Meanwhile, levels on the downside to watch include previously surpassed Fibo retracement targets of 50% and 38.2% (1 minus 61.8), which come in at 5,563.46 and 5,426.42, respectively.

The 38.2% Fibo is more likely to act as support, since it seemed to cap the market's first attempt at a bounce between April 9 and April 15.

Tech sector flirts with key Fibo, consumer discretionary is still way off

Among the sectors hit the hardest during the market's selloff, the Technology Select Sector SPDR ETF XLK reached intraday highs above its 61.8% Fibo target - $218.32 - on both Thursday and Friday, but has yet to close above it. On Friday, the ETF closed down 0.1% at $217.60.

Meanwhile, amid concerns over consumer confidence, the Consumer Discretionary Select Sector SPDR ETF XLY has retraced just 41% of its selloff. It would need to rally 6.4 to reach its 61.8% target at $215.33.

Among the other major market indexes, the Dow Jones Industrial Average DJIA has retraced just 48.9% of its selloff at Friday's close, and needs to climb another 2.3% to get to the 61.8% target of 42,199.29. The Nasdaq Composite COMP has retraced 54.2% of its downtrend, and needs to rise 2.1% to reach its 61.8% Fibo of 18,299.81.

-Tomi Kilgore

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May 10, 2025 07:00 ET (11:00 GMT)

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