Are you confused as to why the S&P 500 has been trapped in a tight range the last few weeks? Perhaps a look at key long and short-term Fibonacci retracements can help – in fact, looking at the recent Fibonacci grid can give you one of those “A-Ha!” moments. Let’s take a look at the grid and I’ll explain where the retracements come from and how they’ve converged right here right now:

Click on image to enlarge!

To draw a Fibonacci Retracement grid, start with a major high, draw to a major low (or vice versa) and the computer software auto-generates the 38.2%, 50.0%, and 61.8% retracements.

That’s what I’ve drawn in the chart above, only adding the 23.6% ratio to the chart.

Here are the levels from which I drew the key Fibonacci retracement grids you see above:

BLUE GRID:

From the 1,576 high in October 2007 to the 666 low in March 2009 (shows retracements on the way up):

23.6%: 881
38.2%: 1,014
50.0%: 1,121
61.8%: 1,228

Green Grid:

From the 666 low in March 2009 to the 1,219 high in April 2010 (shows retracements on the way down):

23.6%: 1,089
38.2%: 1,008
50.0%: 943
61.8%: 878

RED GRID:

From the 1,219 high in April 2010 to the 1,010 low in July 2010 (shows retracements on the way up):

23.6%: 1,060
38.2%: 1,090
50.0%: 1,115
61.8%: 1,140

I’ll let the chart speak for itself, but the main idea is that we have a dual Fibonacci confluence at the 1,115 area along with a dual confluence support at 1,090.

The big number to watch today is the 1,121 retracement level (blue) from the 50% line of the “Entire Bear Market” retracement.

A break outside of either one of these areas – 1,120 as upside resistance and 1,090 as downside support – likely results in a move to the next level, which would be 1,140 to the upside and 1,060 to the downside.

A break beyond that, however, changes the game and breaks the market out of this really weird confluence of so many timeframe Fibonacci levels and would argue for a continuation move – upwards to the 1,200 level if above 1,140 and back down to 1,010 if under 1,060.

As traders, we don’t try to predict, but instead take opportunities and manage risk – Fibonacci grids like this can help you set up the contingency plans using “IF/THEN” statements (in terms of entries and targets).

Keep this reference grid handy and watch price as it tests these levels.

For more daily updates from Corey, visit his blog at Afraid to Trade.com