S&P – Topping?

BarroMetrics Views: S&P – Topping?

Back from Switzerland – in time to see the S&P breakout to new highs accompanied by below average volume and range – a condition that, until QE, I’d be calling for a change in trend, from up to down. In this QE era, you may hazard a guess – you may suggest I’d say:

 ‘I need to see some sign that ‘The Belief has been shaken; you know, the belief that FED can keep up their magic act and prevent a bear market’.

Well, this time you’d be wrong………Why? Because this time, the Nov 12, AMB Fred Graph, shows we have dropped US$200B from the high (Figure 1). In the past, this type of drop has signaled some sort of top. Moreover, the CAPE system signaled that the Oct drop warned of a topping process. So, in addition to the technical evidence, we have two ‘QE’ indicators suggesting a possible topping pattern.

But, what the QE indicators don’t do, is tell us the magnitude of the correction (assuming it is only a bull market correction). Here where the Barros Swings come into play.

FIGURE 2 shows that a sell signal would trigger a 13-week change in trend pattern (the daily proxy is the 73-period Hart Swing, the black line in Figure 2). A 13-week change in trend suggests a minimum move to the 12-month line turn. Currently this price is at 1715.36 (basis cash).

So, if a sell signal is triggered, the minimum price would be the 12-month line turn price, a price that is currently well below the market. And, the maximum?

Based on previous bear markets, a correction of the 60-month swing trend, would result in a move back to the 1987 yearly bar, 340.45 to 216.88. Those prices sound extreme even to my bearish ears. So, let’s just aim for the 1715 area until a bear market is proven.

What would trigger the sell? A bearish conviction close below 2011. By the same token, a bullish conviction close above 2059 would negate the bear setup. And, this time, unlike other occasions, if a sell is triggered, I’ll be willing to take a short – provided we see rising volume and range on a decline.

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FIGURE 1: FRED Graph

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FIGURE 2 73-day Hart Swing

5 thoughts on “S&P – Topping?”

  1. By definition, if we can think of it, it won’t really be a black swan event. But a few “What Ifs” cross my mind. What if:

    1. Abe loses the election? As we can see, QE hasn’t really worked in Japan after all that sound and fury.

    2. Putin really feels trapped as the Russian economy feels the pain and he decides to seriously lash out? Not necessarily via a convention war, but perhaps something unseen but potentially more devastating via the financial system?

    3. Xi can’t hold the economy together after all that tiger bashing. After all, the people have given him the benefit of the doubt for a few years now.

    Top of mind now is Point 1.

  2. Hi Joshua

    Thanks for the comments.

    I agree with your possible scenarios. Let’s see what plays out.

    If the FED continues to pump money into the system, I agree with Bentham that we’ll see new highs before any decline comes.

  3. Hi Ray,

    As far as I can see there is a huge expanding triangle/broadening pattern that is in play in S&P.
    Guess it is the QE play in Europe that is driving the markets.

    Regards,

  4. Hi Manish

    Thanks for dropping by.

    We’ll have to disagree on the ET. I see the ‘E’ leg of a possible Expanding Triangle as having gone too far for the pattern to be valid.

    On your other point. the European QE can’t be doing sentiment any harm. Add to this the Chinese joining the party by cutting rates also helps.

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