» Inflection Points Fast Approaching Blog for Trading Success: Ray Barros

Inflection points - critical turning points - appear to be approaching in the US Stock Market, US Dollar, Gold and to a lesser extent, 30-Year Bonds. In this and next blog or two, I’ll review the instruments.Let’s start with the S&P (basis cash).

Figure 1 is the 12-Month (yearly trend) Barros Swing on the S&P.

In end 2007, we gave an Upthrust sell signal whose minimum target was met when the S&P entered the Primary Buy Zone 894 to 798. When the S&P dipped to 666 and bounced, it raised the possibility of a buy signal should we see a bullish-conviction, monthly close above 894. If the buy signal is triggered, the minimum target is the Primary Sell Zone 1576 to 1461. And, there would be a strong probability that the market would exceed 1576 but remain under the Maximum Extension 1708.The question then becomes, what do we need to see:

to confirm the bullish scenario or
to reject the bullish scenario?

Before I examine that, let me make it clear that I do not rate the buy signal as auguring a high probability for a new bull market. Does the possibility exist? Of course. The market can and often does anything. But based on my studies, the probability of a new long-term bull market is remote.

Let’s have a look at the reasons for this belief.

The 2000 high in the S&P marked the end of a long-term bull market - it marked the end because we took out the 2002 lows in March 2009. So whatever we have, we don’t have a bull market for the 12-month swing (i.e. we no longer have a series of higher highs and higher lows in the 12-month).

Long-term bull markets have a mean of 16 years +/- 2 years. This one began in 1982 and ended in 2000. The following bear to sideways corrections last 15 years +/- 2 years. Using this as a measuring stick, the end of the correction would be 2013 to 2015. For another method of calculating the duration of the correction. Let’s turn to Dow Theory.

The DJIA bull lasted 1982 to 2007, 25 years. Dow Theory states that a correction will be about a 33% correction in time and my own studies suggest it will not exceed 50%. Hence the correction will last until about 8 + 2007 = 2015.So we can say that the US Stock Market (S&P, DJIA) will correct to around 2015. The question then becomes: what form will this correction take? Figure 2 shows the possibilities. We can either have a 1929 type correction or we can see a 1966 to 1982 type correction. The key indication of the correction’s form will be whether or not we see a bull-conviction close above 894 (S&P, basis cash).

More tomorrow.