BarroMetrics Views: A Roadmap for the S&P II
Carrying on from yesterday - the final matter I want to consider is…..
The Target for the April 2009 Buy Signal
Figure 1 provides the targets for the S&P context:
- The most likely target is the area bounded 1710 (Maximum Extension) and the top of the Primary Sell Zone 1552.
- The minimum target is the 78.6% retracement, 1385 and finally
- The Primary Sell Zone itself, 1553 to 1454.
As to when (i.e. the time) we are likely to see this move terminate, I’ll leave that question for Monday.
What I’d like to consider now is the “Death Zone” possibility. The “Death Zone” is the name I give:
- the retracement zone equivalent to the Profile Top of the Value Area (when the market comes off the Primary Buy Zone): between the 50% and 66.67% (1292 and 1670 in Figure 1) or
- when the market comes off the Primary Sell Zone, the retracement zone equivalent to the Profile Bottom of the Value Area: between the 50% and 33.33% (1670 and 1030 in Figure 1) or
Now if the S&P were truly accommodating, we’d see a bounce of 1030 level. Now we saw last night a rejection of prices below 1030 with a close above that price. But what if we see tonight a bearish conviction close below 1030? Will that constitute a ‘Death Zone’ play?
Unfortunately no.
When you have a Negative Development buy signal, the normal ‘Death Zone’ setup and entry (close below the bottom of value in this case), does not apply. The reason is the setup’s failure rate within the context makes it no better than a random occurrence. For this ‘Death Zone’ entry, I need to see a bearish conviction-close below 666.
This Death Zone setup does provide an early warning: the 78.6% (21.4%) - 936 (basis cash).
A close below 936 would sound a warning that the Death Zone setup is in play. So, that price would be the maximum price that I’d be willing to look for a bounce. If we see acceptance below 936, I shall wait to see if we see a recovery above 936 - that would suggest the S&P is ready to test the targets mentioned at the start of this blog.
FIGURE 1 S&P 12-Month Swing
Refer this blog post to a friend or colleague…
