» BarroMetrics Views: An Interesting Time III S&P Blog for Trading Success: Ray Barros

BarroMetrics Views: An Interesting Time III S&P

Those registered for the free video service know that I have been looking for a 5-day Forecasting Change in Trend Pattern to complete. In this blog, I’ll review that scenario. In the process I shall outline the way I analyse the markets.

The first questions I ask myself are: what is the trend of the 18-day (This is equivalent to the monthly trend which is my trader’s timeframe)? Is it likely to continue or change?

Figure 1 shows the S&P (cash) with 18-day Barros Swings and 54-day Hart Swings (to represent the13-week trend [quarterly]). I see an uptrend with no signs of a change in trend in the offing, so far as the 18-day is concerned. We completed a correction on July 8 and the current swing to1048 is a normal move. However when we look at the higher and lower timeframes, a different picture emerges:

Figure 2 shows the 12-month (yearly trend). We see the bottom of the Value Area (33.33% retracement). We also see that July 09 triggered a 12-month buy signal that projects a target to the magenta zone (Primary Buy Zone to Maximum Extension). So even if we see a down move in the 18-day or 13-week or 12-month it is unlikely to be more than a correction of the 12-month up move. Of course a 13-week (or greater correction) will tend to mean an 18-day Change in Trend (see Nature of Trends).
Figure 3 shows the 13-week as a log chart. I have compressed the data to show swings since 1975 so you can eyeball the fact that the current 13-week is statistically overbought. This does not mean that the 13-w line must turn but it does mean that: a) buying without a 13-week correction is relatively high risk and b) the line has a high probability of turning.
Figure 3 also shows we are near 13-week resistance at 1065.
Figure 4 shows a possible variation of 5-day Forecasting Pattern. This pattern suggests a change in trend in the 18-day if we see a bearish conviction close below the Primary Sell Zone (1032 see Figure 5).

So at the end of the Trend Analysis, I am looking to sell at the termination of the 18-day uptrend.

Once I have a strategy, I look for a zone. Figure 5 shows that the current price action is at MIDAS resistance, and we have a series of Fibo Projections. We also have the 13-week stats as well as the 13-week price resistance and the 12-month 33.33% zone.

Normally I show a time window analysis but space does not permit. There is a time window for Mon to Wed next week.

Once I have a zone, I look for a setup. The Normalised Volume chart (not shown) shows that the breakout range and volume on Thursday September 10 was adequate. But Friday’s small range, low volume day was bearish. The Market Delta charts (not shown) showed normal selling control and this is bearish given we had a higher high and higher low.

In short, Friday’s bar has provided a setup.

Once I have a setup, I look for an entry and initial stop.

ENTRY: The End of Day entry would be a bearish conviction close below the Primary Sell Zone: the cash price is 1032; basis Dec the price is 1027.

STOP: My preferred stop is above the Maximum Extension. Basis cash this is above 1051 and basis Dec this is above 1049.

TARGET: For the profit target, I am assuming a 13-week line turn and I’d expect the 18-day to find a low at that price. This is currently coming in, basis cash, at 854. But there is a more conservative target: there is a gap between 905 and 910. We should see 910 and I am opting for that as my target.

If I enter no lower than 1020 (basis cash) and risk a stop above 1051 of no more than 40 points, my reward-to-risk ratio would be about 2.8: