BarroMetrics Views: Blinkers On?
Today, I exited the S&P longs, I took at the beginning of the quarter. To help you understand my reasoning, I need to briefly explain the inputs I use to make my trading decisions.
The inputs can be placed into 4 categories:
- Price Structure - this includes using fundamentals to provide a context.
- Volume-Range relationships
- Time - mainly seasonals. Now also looking at Kress Cycles.
- Sentiment
For the most part, as Figure 1 shows, the price structure, and volume range have been negative throughout the rally since September. Now add to this mix that in the past month, both my sentiment services, Whisper Number and Sentiment Trader have been flashing danger signals.
Given these factors, you may well ask why did I stay in the trade for so long?
The factors that kept me in were:
- The Bernanke put which appears to have resulted in the belief that the US Stock Market can rally irrespective to what is happening to the rest of the world.
- The seasonals (Figure 2) and Kress cycles. Figure 2 shows that seasonals start to turn weak in Jan.
On the news front:
- Larry Levin’s ‘Trading Advantage‘ reported:
“Tuesday’s 5-YR Note auction was horrible. It was such a shock to the bond market that interest rates spiked as Treasuries dropped like a rock.
China had its second failed auction in a month on Tuesday…and it was only the equivalent of $3.2-billion.
The Eurocurrency dropped like a rock from its intra-day high. Why? The Europeans also had a FAILED AUCTION! The European Central Banks (ECB) tried to sell off all of its recently purchased toxic junk that it had bought from Ireland and Greece (to name a few), and the market told the ECB to go pound sand. The ECB was left holding the bag with 13.5 BILLION Euros unsold – thus a failed auction.”
- The Case-Shiller single family home price index was released this morning, and for the 4th month in a row, house prices have fallen. The report said, “U.S. single-family home prices fell for a fourth straight month in October pressured by a supply glut, home foreclosures and high unemployment.”
- Also released this morning was the Consumer Confidence Index as compiled by the Conference Board. The Index came in below expectations. But I was more interested in the the “jobs plentiful” index - that dropped to 3.9 percent from 4.3 percent.
- Finally we have the rising inflation problem in China that is not being adequately dealt with by the authorities. When they are finally forced to, I expect to see reverberations on the US side.
With this fundamental backdrop, and weak technicals, I was no longer prepared to hold on to my longs. This does not mean I’ll go short. I’m prepared to sit on the sidelines and wait for the technical picture to resolve itself.
FIGURE 1 Normalised Volume Cash S&P
FIGURE 2 MRCI Seasonal Chart March S&P
Refer this blog post to a friend or colleague…
