In S&P Jan 2009 III, I explained why I had placed stops  above 868.20, basis March, on a RePo short signal triggered on Jan 07, 2009. In today’s short blog, I want to outline ancillary data I had considered as at Jan 07 and rated a low probability.

Figure 1 shows the Barros Swing picture.

FIGURE 1 Barros Swings

But look closely at the blue lines, the 5-day swings (weekly trend). What possible pattern may be forming there? Figure 2 shows the pattern.

FIGURE 2 5-Day Swing

My preferred picture is for a small sideways pattern to form between 942.50 and 803.1, basis March; I then expect to see a retest of the 741 to 788 Primary Buy Zone. But we cannot ignore the possible H&S bottom. For the H&S to prove true, we’d need to see acceptance above the trend line no later than Feb 13, 2009. This acceptance needs to be followed by a strong upside breakout.

The question is, do I take a long trade based on last night’s price action? Going through the Psychology of Intelligence Analysis and Decision-Tree, the answer is no. The long/short sides are too close to call. For this reason, I stand aside and wait for the market to shows its nature.

It is important to note  that the results of the analyses are based on the assessments I have made. I guess this is why Van Tharp says we trade our beliefs about the market rather than the reality of the market.

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