BarroMetrics Views: S&P 2012-02-27

We are seeing all sorts of divergences in the S&P:

  1. The Dow Jones has moved above last year’s high but thus far the S&P has not.
  2. If the S&P breaches 1371 (basis cash), it will have moved above last year’s high but
  3. With AUDUSD well below 1.10, we’ll be seeing non-confirmation of the S&P highs by the AUDUSD.

Normally, in this situation, I would be looking for a top. But under current conditions ….??

QE has placed a floor below the S&P and the US Stock Market:

  • The decline in volume and range, as the S&P has ground up from 1200 lows, shows little buying interest; but
  • The fact that the S&P has ground up shows there is even less selling interest.

What we are seeing is a repeat of the move up from August 2010 low to the May 2011 high - when the marker ground up from a low of about 1010 to a high of about 1371.I have attached two charts  showing the above; and just for a change, I have used Insider Pro’s Volume Candlesticks.

There is no time variable for the charts; the horizontal axis is the volume, the vertical axis shows the range. So, the wider the candlestick, the greater the volume; the narrower the candlestick, the lower the volume.

The charts are a stark illustration of the QE phenomenon.  And given that, when will the S&P top?

In my view, until we see an event that shakes the ‘the Fed will Save Us’ mentality, the S&P will continue to move up. The last time w saw Europe provide the event; this time, we’ll probably see the event come from a different source since Europe is now ‘old’ news.

For me, I’ll be waiting for an bearish directional bar before selling. What will make it difficult to sell will be the fact that it will probably be a humungous bar down. But once the move down starts, it is unlikely to pause any time soon.

candlepower-2010-2011.png

Figure 1 S&P Volume Candlestick

candlepower-2012.png

Figure 2 S&P Volume Candlestick

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