The Sale – S&P in Bubble? 2

BarroMetrics Views: The Sale – S&P in Bubble? 2

One of the main lessons I seek to drive to drive home to those attending my seminars is to ‘see the other side’. When you do this, you bypass a host of biases, e.g. the confirmation bias, and the anchor bias. By ‘see the other side’, I mean review your analysis with the assumption that it’s incorrect: what would happen if the alternatives prove true?

In The Sale – S&P in Bubble?, I took the view that an S&P top would occur later than Dent was predicting. In what way could I be wrong? Well,

  1. It may not occur at all. That poses no danger to my longs – the current trade management strategy would take care of the situation.
  2. It occurs earlier. This situation does pose a danger.

With (2) in mind, let’s look at the possibilities.

What evidence do we have that the S&P’s recent trajectory suggests a top?

I like to use Gann Angles when measuring acceleration. The MarketAnalyst software allows me to set the price-time ratio scale so that I can compare different times and instruments.

Figure 1 (log chart) shows the 13-week bull runs since the 1994 low. We see:

  • The run from 2009, showed an acceleration when compared to the two previous, and
  • The current run off 8/28/2015 low has accelerated again.
  • Indeed, the run since the Trump election (not shown) has again accelerated and is now above the 75-degree angle (1×4 for Gann enthusiasts).  This sort of move usually marks a blow-off, last move up of a structure.

Gann Global runs a newsletter that looks to identify possible tops and bottoms using prior stats and applying Gann’s ideas. In a recent public webinar, it suggested that there was a confluence of dates to mark a significant top (correction or final to be determined) in the time zone March 17 to April 10.

To identify if projected top has taken place, Gann Global uses the recent S&P pullback of 1.9% (2278-2233 cash S&P) as a trigger. I’d also use that corrective structure as a guide, but I’d need to see a move to 2224 before I’d say that the top is in.

So, how to use this info?

Watch the angle of ascent into the March 17 to April 10 period. If we maintain above the 1×4 or accelerate above it, I’d tighten my stops. If we reduce to the 1×2, I’d maintain my current strategy.

So, if you are long US stocks or US stock indices, how are you managing the trade?

FIGURE 1 S&P 13-week with Gann Angles

 

 

 

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