BarroMetrics Views: S&P Aug 10 2010
Normally I keep separate posts from the Weekly/Daily comments and this blog. But I do make exceptions and this is one of those occasions - it seems to me we may see a resolution of the S&P’s congestion in the next day or two.
Before I share my views, let me say that I am not trading at the moment. I normally abstain from trading in August because the volume in the instruments I trade thin out: I guess because traders in Europe and the US take their holidays.
OK, let s turn to the S&P (basis cash). Firstly, a context to yesterday’s price action.
Figure 1 shows the Daily S&P.
You’ll notice that after the strong move up on Monday, Aug 2, the ranges shrunk at the Death Zone (between the 50% and 66.7% retracements). Figure 2 shows the 81-minute and ‘normal’ diagonal terminal. In short we see possible ’setup sell patterns’ at a resistance zone. All we need see to complete the sell is an entry signal (what I call a trigger).
(For readers of Nature of Trends, the 81-minute Diagonal Terminal is not a forecasting pattern because the symmetry requirement has not been met. Nevertheless, if we saw a break down after the high at 1128.75 is breached, we’d have a change in trend signal on the 81-minute (trend of 5-period swing 81-minute = 1 day swing).
Let’s now turn to Aug 9’s price action.
We saw the S&P achieve the minimum target by exceeding the high [on the 81-minute (Figure 2)] at ‘A’ (1128.75); last night’s high at ‘B’ is 1129.24.
As far as volume at ‘B’ is concerned, normally I’d have said the volume was ‘picture perfect’ for an Upthrust Change in Trend; but for last night we do have a competing pattern:
The FOMC pre-announcement and announcement day strong bullish tendency.
Rob Hanna has produced a very interesting study - see http://www.quantifiableedges.com/fedguide (e-book US$25.00)]
With Rob’s study and the current choppy price action sounding a caveat against becoming too bearish, this would be my strategy if I were trading:
- I’d look to sell the S&P (1/2 size) on a bearish-conviction close below the 81-minute Primary Sell Zone 1124.
- I add again on the same type of entry bar on a bearish conviction below the daily Primary Sell Zone 1116 (1/2 size); and
- finally, since in this case we have a reaction low at 1107 which I’d treat as significant, I’d add to my shorts (max 1/2 normal size) on a Daily bearish-conviction close below that price.
Basis Sept, the cash prices above come in at:
- 1121 (81-minute sell trigger),
- 1112 (Daily Sell Trigger) and
- 1103 (significant low)
And given that the S&P has been very whippy, I’d wait for closes in the Daily time frame. This may mean that I’d need to sell well below the trigger points or wait for a test of the points after the breakout.
I’d apply the same approach for the 81-min trigger bar.
Notice I said that the S&P had attained minimum target. To be ideal, I’d prefer to see a move above 1131 (Daily high) before seeing the sell triggers.
FIGURE 1 Daily S&P
FIGURE 2 81-minute S&P
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