» Reply to S&P Question Blog for Trading Success: Ray Barros

BarroMetrics Views: Reply to S&P Question

I received a number of e-mails that are more or less reflected in Medi’s question below…

Do you think we are breaking down on overall market now? We are at the neckline of the big head and shoulder that has been formed over last six month and if we break down from here market could easily drop 180 points on S&P which is the distance of this years high and the neckline. So we will go to 860 on s&p. In the other hand you said in your recent weekly video that market could bottom at 950. Another thing is that momentum on MACD daily is not supporting the recent drops. What do you think is going to happen in next few weeks?

My answer:

My trading tends to look at the total picture rather than one indicator or pattern. I look for a theme and then look at both sides of the picture surrounding that theme.

My theme is is the S&P rhyming (repeating but not exactly) 1966 to 1982. So far:

We have a Negative Development buy signal on the 12m (yearly trend) that projects a target to the Primary Sell Zone below 1709 (Max Extension) to 1454 (start of Primary Sell Zone) [Figure 1].
If this move were to fail, it would do so at the Death Zone (1292 to 1160) where the S&P is now. But because there is a 12M Neg Dev, Buy in play, the DZ is less likely to provide an end of the move to 1709 to 1454.
But the Death Zone can provide a 12-m line turn. Right now that price is coming in at 814 but will rise rapidly in the coming months as at the beginning of each calendar month.
There is a seasonal element in play down to sideways in from May till end Sept. The 12m line turned down in April - we may see the down to sideways continue to Sept.
The 18-day target from its H&S is 930 (0.618) to 862 (1.00). Fulfillment of either target would not damage the 12-m upswing. Of course the lower the target is achieved, the less likely we’ll see the 12m target by year’s end. [Figure 2]
If I were wrong about the Neg Development zone then we’ll see prices accept below 611 (12M Max Extension). A monthly bar that would close below 729 to 666 would be the warning of prices accepting below 666. With such a close, the 12M S&P is negating the strong buying extreme of March 2009. [Figure 3]

In my next blog on Tuesday, July 6, I’ll be covering some fundamental benchmarks to watch for: they will be advance warnings that my view of Death Zone is incorrect. The corollary is until they appear, I’ll assume my Death Zone is in play.

How you play the move depends on your timeframe. As you know from my videos, I am playing the short side until we see some evidence that 13-week has bottomed. Its minimum target is 1000 (which we have seen) and probable max 975.