S&P – At Crossroads

BarroMetrics Views:  S&P – At Crossroads

When the S&P first gave an 18-day Upthrust Change in Trend pattern, I wrote that the minimum target would be the 13-week line turn price.  The 13-w line turned down in the week ending Oct 17 at 1874 (Figure 1). It then gave a reversal bar the following week, and since then has rallied to 1950 (Figure 2). The question is now what?

There are two ways to view the price action:

  • From the perspective of QE, and
  • Technically.

Today, I’ll look at the picture from a technical perspective only.

Figure 3 is the S&P cash updated to Oct 23. I am using this chart to show the retracement levels.I expect any rally to move to the 1989 to 1992 area.

There are four things the S&P can now do:

  1. Rally and fail i.e. turn down and accept below the 1820 low to confirm a bear market.
  2. Rally, stall and test the 1820 low, before proceeding to new highs. Target in this case would be 2500.
  3. Form a V-bottom  and move to new highs. Target would be 2200.
  4. Form a sideways pattern between the Sept high at 2020 and the Oct low at 1820.

Of the four, I consider (4) the least likely. A rally that reaches 2012 to 1999 and turns down would suggest this scenario is in play.

Examining the remaining scenarios:

  • My time window for (1) is Oct 29. If we fail to resume a downtrend by then, we can discount this scenario.
  • If after Oct 29, the S&P continues to rally, then (3) would be the most likely. I’ll be looking for new highs to the 2200 area. We’d then need to see how the S&P reacts to this zone.
  • If after Oct 29, the S&P moves down on volume and range that suggests a correction rather than the resumption of a downtrend, then (2) is the likely scenario.

Given the above, the price action after Oct 29, will be key.

01-sp-13-w.png

FIGURE 1 S&P 13-w

02-sp-13-w.png

FIGURE 2 S&P 13w

03-sp-18-d.png

FIGURE 3 S&P Levels

4 thoughts on “S&P – At Crossroads”

  1. Hi Ray;

    This is a really good treatment to what the S&P can do. Know what you need to do, and then do what you know.

    /shuan

  2. Hi Paul

    Results after mid-terms have been spectacular. Since 1946, there have been 17 mid-terms and they all produced positive returns for the next 12 months.

    Now 17 is not supposed to be statistically significant. And we still have QE to worry about.

    Admittedly, the FED has stopped creating money at the rate of US$85B per month. But, they are continuing to reinvest the funds so created. So, there is a ‘hidden’ QE – at least that is how I understand it will work.

    I mention this because a Black Swan event will upset the Bulls apple cart. But, until that happens, I expect the S&P to continue motoring up.

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