History V Squeeze

The following image from 2009 shows where NYMO (NYSE McClellan Oscillator) falls below zero, producing each downturn in the NYSI (Summation Index).

As has been the case in every bear market over the last 100 years, each NYSI downturn coincided with those approximate dates when the SPX began a steep slide during the 2007-2009 bear market.

Over the last two weeks, the Summation Index has turned down decisively.

My thinking going into Friday’s jobs report was that yields/crude oil and the position of the SPX and IWM carved out a compelling down setup.

The jobs numbers came in stronger than The Street and the aforesaid “indicators” suggested.

So we got what looks like a squeeze. A squeeze versus the start of a leg to the upside.

I say squeeze because the market ripped on a number that is continuous only in the fact that it is constantly revised.

As well/ the Gold/Lumber Ratio is an indirect measure of economic strength. In each bear market cycle, there comes a time when this ratio breaks support. In past bear cycles, waterfall declines have IMMEDIATELY followed.

Below is the 2018-2020 ratio for comparison.

Over the last two weeks, the Lumber/Gold Ratio has signaled expectation of a significant downturn in economic activity.

Two things that are an albatross around Mr. Bulls neck: recession and the expectation of recession.

The market has been a tug of war between a soft landing and a hard landing and no landing (no recession) throughout 2023.

The widely held presumption is that we would have been in an unequivocal recession by now.

So the tug of war got a presumptive bullish push on Friday.

But as you know, follow-through is key.

To wit, the 3 Day Chart is pointing down. Trade above Friday’s high will once again put the index in the Minus One/Plus Two sell position.

This is because the 3 Day Chart pointing down satisfies a Minus One while two consecutive higher daily highs when the 3 Day Chart is pointing down satisfies a Plus Two in my Swing Method.

At the same time, we have a key level of 4187 overhead. This is 540 degrees up from the March low.

It clearly looked like last weeks rejection of a bulls-eye kiss of  4187 opened the door for serous leg down.

The low of the high bar day is the upside pivot (4164).

Notice on the above daily SPX there is a short-term double bottom at 4050 region at the 50 day moving average.

This could perpetuate a further rally phase.

That said, breakage now below this 4050 region should trigger a unambiguous sell signal.

If that should occur downside Follow Thru below the open gap around 3990 triggers a Jump The Creek continuation sell signal.This dove-tails with two important technicals.

Last week we identified the triple bottom on IWM at 169 region.

169 points to/is opposition May 7^th. That was Sunday; so today/Tuesday look pivotal.

IWM jumped to backtest its 20 day moving average and my daily Pocket Pivot Indicator on Friday.

A rollover here with breakage below 169 ish triggers a Rule Of 4 sell signal of a pattern stretching from the October 13^th low.

So this is a critical time frame.

Additionally, AAPL backstopped the push higher on Friday.

360 degrees up from AAPL’s 124 low is 172.

AAPL achieved that level on Friday.

In summation:

History shows that warning signals are flashing with the relationship between:

Summation Index downturns within a bear market

Lumber/Gold Ratio breaks support with a primary bear market

Copper/Gold Ratio breaks support in a primary bear market and

US TSY Notes break support in a primary bear market.

These relationships are all now warning.

When and how many short covering and hopium rallies will occur only Mr. Market and the stars know.

But as legendary trader Jesse Livermore observed 100 years ago, what happens today has happened before and will happen again.

We base our analysis of markets on this concept.

While the conventional wisdom on The Street keeps insisting that “this time is different”, I prefer to place my bet with history.