QE, S&P & History III

BarroMetrics Views:  QE, S&P & History III

Technical

The prior categories provide a context to my technical analysis. I process sensory data visually and kinesthetically; so, it’s no wonder that I lean to charts somewhere in my decision-making analysis. In addition, I prefer to make sense of the world using causation models i.e models that explain how the world works. So, in my trading, I rely on  the Wyckoff-Steidlmayer models. Both look at trading from the perspective of what charts reveal about buying and selling pressure.

One of the main tenets of both theories is directional movement, unaccompanied by confirming volume and range, makes the direction susceptible  to a change.

As an example, let’s have a look at the recent E-mini Price action price action – Figure 1 – and its context.

  • Recent Price Action: The move from the 1553 low, in Profile terms, has not ‘facilitated  trade’. In terms of ‘normal’ volume and range, comparison to the previous down leg (1686 to 1553) and comparison to the previous up leg (1481 to 1686), volume and range have dropped
  • Context: I’ll just summarise ‘the context’ here, having said it many times before: I believe we are rhyming me with 1966 to 1982. As long as we don’t see monthly acceptance above 1758 (Maximum Extensions), we will see lows below 666.

But there is a caveat on the context scenario: QE hae distorted the free market price mechanism by placing a floor for the buyers. The sentiment that  the FED will prevent any significant collapse by continuing QE, is artificially holding stocks up. For there to be a decline in the S&P, either this sentiment has to be shown to be untrue or the FED has to stop easing. Given my view of economics, I believe that this belief is false So, it’s question of when the belief will be shaken.

(BTW: Of the two, the latter is the least likely – we need only see Bernanke’s response  when the S&P fell as a result to the trial balloon that the FED is likely to ‘taper’ QE if the data warrants it. This leaves some Black Swan event to shake investors from their belief that the FED will prevent any collapse).

I have suggested September mainly because the other factors, Economic, Historical and Social, have come together. In addition, Technically we are not seeing the robust action I’d expect to see as US Stock indices make new highs.

es-18-d-bs.png

FIGURE 1 S&P 18d

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