BarroMetrics Views:  The S&P June 27

The sell-off on Friday raises a doubt in my mind about the near-term trend. I was fairly convinced we had seen a low at 1251 basis Sept.  The inability of the S&P to mount a sustained rally when it ‘ought to’ raises the likelihood that 1371 (basis cash) will be the high for the year. For this view to be correct, we need to see acceptance below 1249, basis cash (1243 basis Sept).

The alternative scenario is we’ll see 1249 will hold and then we’ll see a rally that will last until late July or early August.

I said the S&P ought to rally. What are some of these ‘oughts’? For example from Sentiment Trader:

“The spread between the Smart Money / Dumb Money Confidence is now at +25% for only the 2nd time since the March 2009 bottom (late May 2010 was the other instance).  During a bull market, a spread this wide led to positive 3-month returns 84% of the time”.

We should see this week which of the two scenarios will play out.

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