LAST week saw the Dow Jones Industrial Average recapture 11,000 while the S&P 500 broke back above 1,200. These are levels last seen back in September 2008. At the beginning of last week, the major US stock indices were heading higher and both the Dow and S&P were within a few points of hitting important Fibonacci retracement levels.

This technical analysis tool looks at significant market highs and lows and measures how much an instrument retraces its rise or fall between these points. In this instance, traders were looking at the all-time highs of October 2007, and comparing these with the financial crisis lows of March 2009. Taking these data points, 11,250 is the 61.8 per cent Fibonacci retracement for the Dow while the corresponding number for the S&P is around 1,230. This particular percentage is extremely significant in Fibonacci analysis so there were plenty of market participants watching the indices’ behaviour with great interest.

Given all the uncertainty, it seems surprising that stock indices have managed to recover so much of these losses so quickly. Markets have been climbing a wall of worry for a while and investors have been happy to ignore ballooning budget deficits as they search for yield. Even the mounting concerns surrounding Greece, sovereign default and contagion haven’t been enough to rock major global equity markets.

But Friday’s news that the SEC has charged Goldman Sachs with civil fraud shook up investors. The worry is that further charges may be forthcoming covering other financial instruments and other institutions. The news saw all major stock indices drop, and the Dow and S&P are now 2 and 4 per cent below their 61.8 per cent retracements respectively. While they could recover this ground in no time, the SEC action may dampen investors’ enthusiasm. One thing seems certain, and that is that the issue won’t be resolved quickly.