In an English essay, I wrote:
What am I looking at? People enjoying themselves?
I lost points for using a sentence fragment. Is it truly incorrect to use a sentence fragment this way?
There's nothing at all wrong with OP's two sentences as written, but that doesn't necessarily mean the teacher was ignorant. I don't know what other factors might be involved, but in general teachers should be respected (not a morality issue - you just won't learn so well if you don't).
There is no 'rule' saying exactly what constitutes a valid utterance. Much depends on context. In this case the first sentence is more than enough context to make the second one valid.
Personally I think it reads very fluently.
Replace the first question mark with a comma. Bam! [I] Just blew your mind, eh? But seriously, "What am I looking at, people enjoying themselves?" would be much more, uhh, 'liked' by teachers and professors (and the public in general). Well, at least I so assume.
(p.s. I dislike how this site will not allow two spaces after a period. It looks werid having only one.)