S&P – At Crossroads

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
  • Technically.

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:

  1. Rally and fail i.e. turn down and accept below the 1820 low to confirm a bear market.
  2. Rally, stall and test the 1820 low, before proceeding to new highs. Target in this case would be 2500.
  3. Form a V-bottom  and move to new highs. Target would be 2200.
  4. 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.

01-sp-13-w.png

FIGURE 1 S&P 13-w

02-sp-13-w.png

FIGURE 2 S&P 13w

03-sp-18-d.png

FIGURE 3 S&P Levels