Signaling a Topping Formation?

BarroMetrics Views: Signaling a Topping Formation?

For the record, my S&P strategy remains “long or out”. But, I seeing the signs of the beginning of a topping formation, so now it is more ‘out’ than ‘long’.

In yesterday’s blog,  “Free Exposure Trades“:

  •  I mentioned some of the signs I was seeing of a possible topping process. 
  • I also spoke about the Neutral Day Free Exposure setup. 

The setup suggested that we would see a weak opening. Instead we saw, in the first 30-mins of trading,  enough strength in the S&P to say that the FED induced bull market was alive and well.Figure 1 shows a profile of the activity. We see the very strong move in the first 30-minutes (A period).

But, here’s is what is different to past rallies: after the early phase, the upmove failed.

Figure 2 shows the day session spit into 5 parts. We see that after the initial strong move, demand stalled. This was followed by fresh selling. This is the first time, in a long time, that I have seen selling not linked to news of a domestic, or international crisis. If this view is correct (that the selling stemmed from ‘normal supply’ coming into the market), then we may be seeing an unraveling of the FED induced rally.

The next sign I am looking for is a bearish-directional close below 1800 (basis nearest future’s month). Such a close would suggest that we saw an upthrust yesterday.

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FIGURE 1 S&P, Market Profile

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FIGURE 2 S&P, Market Delta

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