He said, 'Stick by me and I’ll be your guiding hand
But don’t ask me what I think of you
I might not give the answer that you want me to.'"
-Oh Well (Peter Green)
Going into the end of August, in Historic Correlations Point To Something Big, we noted the importance of 1229 S&P.
Many market participants were expecting the rally at that time to carry like Clockwork Green to the 50 day moving average. Instead, the market turned down hard without the 50 dma being kissed.
Now, with the 50 dma having moved down toward 1229, how nervous are the bulls feeling about that level being stood up once again? With 1200 S&P and 120 SPY acting as a potential magnet on this morning's option expiration, will stocks falter? If the S&P does gap down, will 1200 hold with another rally playing out for a picture perfect kiss of the 50 dma for the important Friday weekly headline close?
Be that as it may, with 5 waves finishing since the August 9th low, I want to short weakness on Friday/Monday below 1200. I would give it a day or a day and a half in case there is a spike on a Pinocchio of the 50 dma.
That being said, a potentially nasty bearish pattern of 3 drives to a high -- a 1 2 3 Swing To A Test of logical resistance -- sets up what should be another great shorting opportunity.
This is a fractal of the same pattern that played out on the weekly S&P chart into late August 2000 on a test of the March 2000 Bubble Top.
It is a fractal of the 10 minute iShares Silver Trust (SLV) bearish set up, shown this week. that defined a nice short in the metal.
From the May high, the S&P traced out a first wave down to test the 200 day moving average in June. Wave 2 was the rally up into our July pivot on the 1440 Fibonacci calendar day anniversary of the July 2007 orthodox top. Wave 3 was the waterfall decline into August 9th.
The crash began from a Fakeout Breakout above the 50 dma and a July 7th high. It is possible that the S&P will leave another headfake above the 50 dma. A geometric near 30 calendar days after July 7th defined a waterfall low. Another 30 calendar days later defined the important September 7th closing high/September 8th intraday high. We are testing the levels from September 7/8 going into option expiration.
Since the market plays out in harmonics of 90 degree increments, this sets up the probability for the first week of October to magnetize the market lower, 90 days from the July 7th pivot.
Remember that October 10th/11th is the anniversary of two of the most important pivots of the last decade: the 2002 bear market bottom and the 2007 top.
The only question is whether the central banks can buy time and hold the market flat to higher to save quarter end. If so, then cycles could invert with the first week of October being a high. The price action today/Monday should make it more clear as to the resolution.
If wave 2 was a pullback to test the 200 dma and the wave 3 crash began with a fakeout above and breakout back below the 50 dma, it is fitting that a 4th wave should end with a backtest of the 50 dma. With that trendline hovering just above current levels, that leaves a lot of time to burn between now and the first week of October. The implication is that the market will turn down into October.
The bigger picture shows the similarity between 2007/2008 and 2011. The current bear flag could be similar to the position of the market prior to one more low being carved out prior to the big rally into May 2008. Or we could be carving out a bear flag similar to where the market was prior to the crash in the Fall of 2008.
(Typo on Chart: 1121/50% of 2007 to 2009.)
I think the key to the pattern here is that in most cases, first plunging lows are not the final lows. This was the case with the fractal of the waterfall into October 2008 with another plunging low that undercut that bottom the next month, in November.
This was the same pattern in the Spring of 2008: a waterfall low, a rally phase, and one more plunge playing out prior to the big rally into May.
This was the same pattern with the waterfall decline into late November 2008 with one more plunge into March 2009.
This was the case with the Flash Crash decline into June 2010 which saw one more break into early July 2010 for a low.
This should be the case now. Fractals show that waterfall declines are not the final low and that there should be one more plunge that undercuts the August 2011 low.
Click to enlarge
The big question of course is whether a break to a new low below 1100 is a major low with a new bull market unfolding, or if it's simply the end of the first phase of more bear legs to come followed by an intervening rally.
In other words, would an undercut of the August low complete just the first leg down of a 5 wave decline that will play out at least over the next year?
Conclusion: The dollar may be a good indication that stocks are about to falter again. Following its anticipated explosion, the dollar turned its Monthly Swing Chart Up. The normal expectation following the turn up of a big wheel of time is for a reaction. We got it. Now the dollar has traced out a 1 2 3 Pullback which has turned the important Three Day Chart down for the first time since the upthrust. In so doing, the dollar is backtesting its 200 day moving average. As alerted yesterday, this sets up another defined entry. We also bought back EUO(short the euro) yesterday.
Strategy: The bulls continue to march up the option expiration squeeze.
Maybe I’m just a cynic. But let’s face it, this is not a business of choir boys.
On Monday, the market flushed out the Big Triangle that began on August 9th, making a first hour low in the process.
Often a Monday spike low is to the week how a first hour spike low is to the low for a day.
I can’t help but wonder who knew what and when they knew it regarding this morning’s coordinated move... right in front of options expiration no less.
Isn’t that special?
Was that what this week's rally was about?
Was that what Monday’s big gap down was all about? To clear the decks for the Big Squeeze?
As Blue Steel Bennet Sedacca used to say, “There is no better market technician than Greenspan and Bernanke.”
http://www.minyanville.com/businessmarkets/articles/jeff-cooper-jeffrey-cooper-options-expiration/9/16/2011/id/36919?page=full
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