S&P 2012-12-12

 BarroMetrics Views: S&P 2012-12-12

The S&P, for me, is at the crossroads. Cycle highs are due to expire on Friday, Dec  14. The price action shows that Dec ES-mini (& cash S&P) is near the 78.6% retracement level (see Figure 1); this is the minimum retracement level for a sideways market.

Other considerations suggest that if the S&P can accept above the 78.6%, we’ll see a move above 1468 (basis nearest futures month); we then have to see if it can accept above the Maximum Extension, 1494. If this acceptance happens, I am confident we’ll see a move above 1576. (Figure 2)

On the other hand, we may see a failure here. Now, FOMC is usually bullish (see Robert Hanna’s Fed Guide – this is a great piece of research!). So, even if there is a failure, we should see the S&P move North into the FOMC.

(Note that I expect the bullish behaviour into the announcement even though going by the Guide, today’s FOMC configuration is not optimal for the bulls).

What it does after today i.e. in the next few days, will be important. A strong sell-off will suggest a top is in; continuation will suggest a move above 1576.

What to do?

Well, I am currently long. I took off one-third position size yesterday, around the 1430 area.

Those who have heard me speak, know that normally I leave the initial stops in place after ‘the first third exit‘ – since this exit covers all my risk (i.e. even if stopped out, I’ll break even on the trade). But, this time, given the context I have painted above, I am bringing my stops under yesterday’s low.

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FIGURE 1 Daily E-Mini (Nearest Futures Month)

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FIGURE 2 Monthly E-Mini (Nearest Futures Month)

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