BarroMetrics Views: S&P - At Crossroads
When the S&P first gave an 18-day Upthrust Change in Trend pattern, I wrote that the minimum target would be the 13-week line turn price. The 13-w line turned down in the week ending Oct 17 at 1874 (Figure 1). It then gave a reversal bar the following week, and since then has rallied to 1950 (Figure 2). The question is now what?
There are two ways to view the price action:
- From the perspective of QE, and
Today, I’ll look at the picture from a technical perspective only.
Figure 3 is the S&P cash updated to Oct 23. I am using this chart to show the retracement levels.I expect any rally to move to the 1989 to 1992 area.
There are four things the S&P can now do:
- Rally and fail i.e. turn down and accept below the 1820 low to confirm a bear market.
- Rally, stall and test the 1820 low, before proceeding to new highs. Target in this case would be 2500.
- Form a V-bottom and move to new highs. Target would be 2200.
- Form a sideways pattern between the Sept high at 2020 and the Oct low at 1820.
Of the four, I consider (4) the least likely. A rally that reaches 2012 to 1999 and turns down would suggest this scenario is in play.
Examining the remaining scenarios:
- My time window for (1) is Oct 29. If we fail to resume a downtrend by then, we can discount this scenario.
- If after Oct 29, the S&P continues to rally, then (3) would be the most likely. I’ll be looking for new highs to the 2200 area. We’d then need to see how the S&P reacts to this zone.
- If after Oct 29, the S&P moves down on volume and range that suggests a correction rather than the resumption of a downtrend, then (2) is the likely scenario.
Given the above, the price action after Oct 29, will be key.
FIGURE 1 S&P 13-w
FIGURE 2 S&P 13w
FIGURE 3 S&P Levels