Bloomberg News

S&P 500 Index May Decline 7%, Phinamics Says: Technical Analysis

October 04, 2011

Oct. 4 (Bloomberg) -- The Standard & Poor’s 500 Index may slump a further 7 percent after falling below a key technical support level, according to an analyst who predicted the equity gauge’s slump in May and yesterday’s selloff.

The 1,101 line represented the 61.8 percent retracement level from the March 2009 to May 2011 rally, according to the Fibonacci scale, and was also this year’s low, said Sylvain Asimus, founder of Phinamics. He advised investors on May 5 to sell shares, three days after the gauge had peaked at this year’s intraday high of 1,370.58. He said before the start of trading yesterday that a lower level was “imminent,” anticipating the S&P 500’s 2.9 percent slide to 1,099.23.

“The odd bounce notwithstanding, the market is heading lower,” Asimus said in a phone interview from London today. “Just as much as there was a double significance in the 1,101 level, the next support area at 1,018 also has a double significance of being the 50 percent retracement and the 2010 low.”

Analysts who track charts to predict securities’ movements look for support levels that may stop prices from falling and resistances that act as ceilings limiting gains.

U.S. stocks tumbled yesterday as concern over Greece’s debt crisis and Bank of America Corp.’s slump outweighed a rebound in manufacturing and construction spending. Futures on the S&P 500 slid 1.2 percent to 1,073.8 as of 8:11 a.m. in New York today.

‘Next Support Level’

“We could see the move to the next support level in one day,” the analyst, who was previously head of equity and fixed- income strategy at France’s Natixis bank, said in an interview yesterday before the start of U.S. trading. “It’s a really important barrier and nothing says we will not see capitulation.”

Fibonacci analysis assumes markets retrace earlier patterns in specific stages. A Fibonacci retracement level is created by taking two extreme points on a security’s chart and dividing the vertical distance by the key ratios of 23.6 percent, 38.2 percent, 50 percent, 61.8 percent and 100 percent. If a price breaks through one of them, analysts say it may signal a move toward the next point.

The second Fibonacci support level for the equities gauge index lies at 935, according to Bloomberg data.

--Editors: Will Hadfield, Andrew Rummer

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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