BarroMetrics Views: A Roadmap for the S&P

First off, thanks for all who dropped me a ‘get well’ note. I greatly appreciate that you took a moment to do that. The scratched cornea (a result from a split contact I was wearing) was more of sustained nusiance  than anything else. For almost a week, I was only able to work  in a minimal time at the computer. As a result, my workload has well and truly backed up.

If I owe you a reply, rest assured I am doing my best to catch up with the backlog - all done by Sunday (I hope!).

I received a whole host of questions on the lastest video. Rather than answer question each individually, I’ll reply via this blog. The questions mostly relate on how I see the S&P; there  was also some confusion about the way I provide alternate scenarios.

I will cover 3 points:

1. What is my main theme ?
2. When will the correct down move end and at what price?
3. What is the target for the April 2009 buy signal?

Main Theme

The key to understanding my view of the S&P is to understand that I believe we are following the 1966 to 1982 pattern - remember that I believe that history rhymes rather than repeats. This means that the main elements of the 1966 to 1982 pattern will repeat but much of the detail will be different.

Figure 1 shows the 1966 to 1982 with the current equivalents.

End to Current Downmove

If I am correct, then we are in the midst of a multi-month correction (see ‘we are here’ Fig 1). The first question is how long will this correction be?

At the moment, we have two guides:

1. The first is a seasonal tendency for the market to back and fill from May to September.
2. The second is the DJIA theory rule of thumb that a correction will be at least 33% of the impulse move and no more than 66.67 %.

This suggests a time window of August to December within which the Sept seasonal falls nicely. (See Figure 2)

The next question is how far should the downmove extend? Here are the candidates.

1. The Dow Theory targets are 1036 to 951
2. The Market Profile Targets are 1030 to 936 (assuming the Death Zone play does not eventuate)
3. My new Squares target projects a minimum of 1000 to a maximum of 750 ( assuming the Death Zone play does not eventuate).
4. The H&S has two possible targets in this context: The .618 at 924 (943 is 50% of the upmove from the April lows)  and the 100% at 852 (850 is 78.6% of the upmove). See Figure 3

So until the H&S triggers a sell signal (in my view we have not seen acceptance below the neckline and hence a sell signal has not been generated), we can only assume that the ES (S&P e-mini futures) will continue to move down. When and if the sell signal is generated, we may be able to assess a narrower time and price window for the end of the correction.

For the moment, my best guess is 1000 to 924 with the correction ending sometime in Sept/Oct 2010. If this is correct, then we can expect a sideways price action once we see the bounce off the 1000 to 924 lows.

I shall complete the analysis tomorrow (including the Death Zone issue).

FIGURE 1 S&P 1966 to 1982

FIGURE 2 S&P 2000 to 2010

FIGURE 3 S&P H&S

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