BarroMetrics Views: The S&P 2014-06-26
To date I have held the view that because QE has distorted the price mechanism, traders of US indices, especially the S&P, have to adopt the strategy of ‘long or out’.
But for the view, I would have been looking to short the S&Ps since May 21. As Figure 1 shows, since that date (when the S&P broke to new highs), the S&P has seen declining range and volume (blue arrows [ATR], blue lines [Volume] Fig 1). This is normally a bearish sign for me. But, as SentimenTrader commented in his June 25 newsletter: “…has traditionally been a bad sign, but the market has run over a lot of bad signs so its hard to have complete confidence that it’s going to start reacting now”.
I’d go so far as to say that unless we see a sign that the market see as false, its belief that the FED can prevent a bear market, we’ll see the uptrend continue.
Let’s take this a step farther.
On June 24, we saw a down bar on above average volume and average range. This was followed by an up bar on June 25 of almost equal volume to June 24 but about half the range. This is normally a bearish sign for me. But, if I am correct about QE’s distortion, then we’ll probably see an other up day today.
Let’s see what it brings.
FIGURE 1 S&P Normalised Volume