BarroMetrics Views: A Question of Flexibility
I am forever grateful to Peter J Steidlmayer. Whatever success I have known from the markets, comes from his willingness to share with the newbie traders his insights of the markets. I am not just talking about his idea on the Market Profile; his greatest contribution to my learning?
The way to approach an analysis: have a picture of what a market ought to do, observe what the market is doing and the gap between the two provides the sliver of trading opportunity.
The S&P has provided an object lesson of the method.
In early 2000, I took the view that the S&P was repeating the pattern of 1966 to 1982 (see Figure 1). This view served me in good stead. I was able to take advantage of the 2000 high, the 2002 low, the 2007 high and 2008 low. Then in July 2011, I started to see a divergence from the path that had been serving me so well.
I now had a choice: accept the new info, accept the possibility that my ‘1966 to 1982 view’ would prove wrong, acknowledge that my scenario would have to change and make the appropriate changes to my trading plans. Or stick to my guns and keep to the original view.
Now with hindsight, you may be tempted to say that changing my mind would have been easy to do; but I assure you, it was not so at the time. The change meant that I would have to say publicly: ‘I am wrong!’ (one of the benefits of writing a blog and appearing on TV and radio is you wear a hair shirt for the world to see).
But, with the lessons I learned from Pete, I told it as I saw it. “Acceptance below 1249, basis Cash S&P” meant we were unlikely to see acceptance above 1371; if that proved so, we were likely to see a full fledged bear market that projected a minimum target to the 1987 correction, 318 to 226 (see Figure 2). Acceptance below 666 would confirm the scenario.
With the amended scenario, I took the view that:
- The low on Aug 9, 1101 would provide a launching pad for a move to 1249 to 1262, basis Cash S&P.
- That high would occur Oct 2 to Oct 18, with the most likely date being Oct 3 to Oct 6.
Given the moves this week, is it again time to change my mind? More tomorrow……stay tuned!
FIGURE 1 1966 to 1982, S&P
FIGURE 2 12-M Swing Target S&P
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