S&P 2014-10-13

BarroMetrics Views:  S&P 2014-10-13

I am postponing the conclusion to Default Future until tomorrow because a very interesting event occurred last week….

Figure 1 shows a weekly chart of the S&P with the levels marked from the 1815 lows to the 1987 highs. We see that the S&P has closed below the top of value. Normally I would expect the next stage to be a move to the bottom of value at 1872 en route to the Primary Buy Zone at 1831 to 1815.

Moreover, a Upthrust Change in Trend pattern was triggered for a swing of an 18-day. magnitude.  This normally would suggest a move to at least the Primary Buy Zone (1831 to 1815), and probably a change in trend from up to down…..normally. 

But, these are not normal times. QE has so distorted the S&P price mechanism that even reliable patterns like an Upthrust have failed more often than previously.

The question now is are we seeing a tipping point of the belief that the FED will, and can, forever rescue the US Stock Market Bull?

Figure 2, for me, provides the tools to answer the question.

The current retracement may be said to form a test of the retest at 1909. In the process it has taken out the prior July 2014 low. The 13-week swing line will turn around 1904.

Now, if the 13-week swing line does turn down, and this is followed by a bullish conviction bar close above 1920, we have a continuation buy signal that suggests the Bull is intact.

On the other hand, a bearish conviction close  below 1878 will confirm the scenario of Figure 1; it would also imply that a bear market has started.

Finally, I’d note in passing, that if we see a monthly close below 1913, we’ll have seen a sell signal in the system I presented earlier this year. It would be the first time since the Bull started that this system has triggered a sell.

The system comprises of:

  1. a setup: the current CAPE reading is at least 150% above its long-term average; and 
  2. a trigger: a monthly S&P close that is 3% orf more below the previously monthly close. 

The signal is invalidated with a monthly close above 2020.

01-sp-18d.png

FIGURE 1 18-day S&P Cash

02-sp-18d.png

FIGURE 2 18-day S&P Cash 

03-cape.png

FIGURE 3 CAPE

6 thoughts on “S&P 2014-10-13”

  1. Hi Ray, on a different matter, whats your opinion of the Swiss referendum on returning to the gold standard? How will this affect the markets?

    Also what is happening in Hong Kong with regard to the riots?
    cheers Baz

  2. Hi Baz

    In the long run, I expect the move to be bullish for Gold.

    No riots over here.

    Some ‘violence’ when the police, on the first night of the protests, fired tear gas; and then, there was a suggestion that some altercations in Mong Kok were caused by Triads hired by the government.

    Al in all quite peaceful when compared to Ferguson and the Sydney anti-Vietnam protests.

  3. Hi Baz

    Did you get some inside info?

    While no riots, last night saw an escalation of violence at Admiralty and Mong Kok.

    Today may see an even greater escalation. Your riots may still come to pass.

  4. It is said that the parents of the leaders of Occupy Central were persecuted during the Cultural revolution of China during 1960-1970s by communist party, some of them finnally escaped to HK.The leaders lived a very miserable childhood life so they hated communist party so much. So they incited people especially students to fight against the government. It’s nothing about democracy…

  5. And I don’t think the party is so low or no need to hire triads to solve this problem. They have many ways (their usual style)to solve this problem, like simply telling those leaders to stop doing that otherwise your wealth in USA in taiwan in mainland china will all gone or asking friends or relatives of leaders to persuade them or some exchange of benefits… Normally these leaders will consider terms carefully…

  6. Hi Wenda

    I usually stay out out of political discussions.

    (And mine will be the last post I’ll allow on this issue… )

    In the case of the triads there is some factual base. Of 37 anti-protestors protestors arrested, 32 had prior triad convictions.

    That of course does not mean that the Govt hired them; but it does suggest someone did.

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