BarroMetrics Views: This Time It’s Different (?)
I was watching CNBC on Sat morning in Hong Kong after the close of the S&P Friday’s session close (HK is 13 hours ahead of EST). The camps were evenly divided between those who saw Friday’s down move as an opportunity to buy, and those who saw it as the start of a major correction. None saw it as the start of a bear market.
So, is this time any different from previous crisis corrections?
Well, there are some differences:
On the bear side:
- There was no single factor the press could point to be ‘the cause’. In the past, we had the “Washington gridlock’, “Europe in Crisis’ etc stories. This time the stories ranged from Argentina to China and beyond….Whenever I see a number of ‘reasons’ for a large move, I tend to assume the ‘true’ story is unknown.
- The sentiment picture was ripe for a fall.
- Momentum was declining on the last 5-day swing upside breakout.
- The FED is on a tapering curve. (But for how long? Will the recent move down shift them back toUS$85B per month?).
On the bull side:
My technical picture shows no 18-day change in trend pattern. So, until that happens, I’d expect to see a downward move to turn the 18-day line down. Until there is a change in trend pattern, I’d have to assume that the uptrend is intact.
In any event, the jury is out on whether Friday saw a breach in the nexus between the S&P and belief that the FED will ‘save’ the stock market from any substantial collapse. For me, until that happens, the strategy is ‘long or out’.
If I were a bear, how to manage the trade?
Figure 1 a combined Market Profile chart. A down move started on Thursday in the last half-hour. The move’s development ended in the ‘H’ period (12:30 CT). The move down was not a surprise. The volume profile (red rectangles) show volume moving down as prices move down.
The next directional move occurred in the ‘I’ period. But, notice the difference between the two profiles. The ‘I’ period volume profile shows a bell curve with the Point of Control around the mid-point of the range (1790). This shows that volume has not caught up with price, and suggesting that the ‘L’ and ‘M’ periods declines were more long liquidation than fresh selling. This makes today’s opening important.
If the ES can open above the top of Friday’s value area (1793), this will create upside momentum for a test of 1810. Acceptance above that will clear the way for a test of 1841. If the ES opens below 1782 or unchanged, then a 1793 test will be important. Failure to test or break above 1793 should see lower prices.
FIGURE 1 Market Profile