BarroMetrics Views: Wish to See
One of the pitfalls traders face is “seeing what we wish to see”; and often, the market will accommodate us.
Take the S&P last week – the price action had enough signs to satisfy both bull and bear.
We started with the seasonal bullish start on Jan 3. The bulls were clearly in control. Thereafter the picture is less clear.
On the bull sign we can argue that:
a) After Jan 3, the S&P attempted on each of the three days (especially Jan 4 and Jan 5) to sell-off and failed.
b) On Jan 4 and 5, the sellers exhausted themselves and the S&P broke through the open and closed near the highs.
c) The S&P closed on the week on its highs.
On the Bear side:
a) The buyers, in the face of a lack of sellers, failed to extend the range. This suggests the up- move will be vulnerable to any selling pressure.
b) On Jan 5 and Jan 6, we had bullish news BUT the buyers failed to extend the range.
c) The close of Jan 3 was 1278 and the weekly close was 1278. In other words, we saw no upward progress after Jan 3 despite the favorable climate.
So in this situation, what do we do?
What’s important is first we recognize both the bullish and bearish signs (rather than taking only that info that supports our view), and second, we identify what we need to see to tell us the deadlock is broken. We can then plan our responses.
On another matter – the key coming event for the week. For me the key events this week will be:
- The Italian debt auction on Friday, Jan 13;
- The ECB rate decision, 7:45 am EST on Thurs, Jan 12; and
- The BOE announcement on Jan 12 at 7:00 am EST.
Of the 3, I rate the Italian Bond auction as having the greatest probability of moving the market. There is some suggestion of the ECB decreasing rates; but, I rate that a low probability given German comments.