Jeff Cooper: Where Do We Go from This 8-Year Anniversary of the Bull Market Bottom?

Instead of a full analysis of gold and the precious miners promised for today, we are going to take a look at the stock market on this anniversary of the 2009 low.

Tomorrow's report will cover the precious metals.

The SPX/DJIA are blowing off and the question is whether an ensuing decline will be a correction or a bear market.

If a correction, will it be a garden variety 5% or something more pernicious?

Within that context, there are several scenarios which we will address here.

Earlier this year, we pointed to the potential for the market to mirror the false breakout into 1973 based on the 40-year cycle, but we stated that there was potential for a massive blow-off toward 2500 SPX.

The prior 40-year cycle from the 1920's saw a massive blow-off.

There is an indication that the SPX may get magnetized to 2482, but it is not a given. There is sufficient evidence to suggest that IF the index extends to 2482, it may be subsequent to a material decline. In other words, a meaningful setback may play out from this 2401 level prior to a push to 2482.

First let's recap the geometry of 2482.

From the 768 bear market low, the SPX advanced to a bull market top at 1576 in 2007. Note the 5-year period which reflects the 5-year period from the breakout over 1430 in 2012, which is addressed below.

From 768 to 1576 represents 6 squares or revs of 360 degrees on my Square of 9 Wheel.

This is significant as a true square or cube has SIX sides. Each ‘side' is a square unto itself of 360 degrees. The 6 sides together form a cube. Completion.

From the 666 low in 2009, a similar 6 squares up ties to 1430.

The recent chart below shows the significance of 1430.

Essentially, 1430 was the pre-crash pivot high in May 2008 (the precise high was 1440).

Said another way, from 1430-1440 to the 666 bear market low was waterfall decline of 6 squares of 360 degrees.

The crash in 2008 was perfection in that it was a precise geometric cube in price — 6 squares or sides of 360 degrees.

Think about that for a minute. A market seized by panic and a systemic crisis saw a perfect decline perfect in its math.

Random walk? Pshaw!

The fall of 2012 lined up to be a major turning point.

Why?

It was 60 geometric months from the top in 2007 as well as 120 geometric months from the bottom in 2002.

In September 2012, the SPX broke out above the key 1430-1440 level.

However, it initially looked like a false breakout and a Bull Trap: the SPX reversed from 1474 skidding to 1343 in 9 weeks for a roughly 10% decline into the week of November 12 and the election.
From there the index exploded in a persistent rally for nearly two years. When the SPX exceeded 1430-1440 again with authority in December 2012, the second mouse got the cheese and it was off to the races.

Interestingly, the decline into the 2012 election and subsequent impulse higher was echoed by the decline into the election in 2016.

Be that as it may, once 1440 SPX was recaptured the second time and with authority, the PROSPECT was for an eventual push to 2482.

Why? Because 2482 ties to another cube (6 revs of 360 degrees) up from 1430-1440.

There are several reasons why I do not think the market is going to stage a runaway move for 2 years like it did in 2012.

Most cycles, including the decennial cycle with years ending in 7, indicate a panicky decline at some point in 2017.

Unless this is like 1927. And, that is the short straw.

The 30, 60, 80 and 90 year cycles suggest a downturn, probably a sharp downturn, is on the table in 2017.

The 30 year cycle ties to 1987. That year there was a correction in the spring and a final leg up into the summer.

The 60 year cycle ties to 1957 which saw a lower double top from a 1956 primary top. The duration of the advance potentially buys the market time into early April.  The 60 year cycle found a low in JUNE 1949 versus a major low in MARCH 2009. So these cycles aren't necessarily exact…they are elliptical, sometimes contracting and expanding.

The 80 year cycle ties to 1937 which topped today, March 6th. Note the anniversary dates of March 6th in 1937 and 2009.

That top led to 50% decline relatively quickly.

The 90 year cycle from the 1920's ties to the 1921 – 1929 bull market.

The low in 1921 was August 25th which ties to the HIGH in 1987.

Anniversary dates? The Law of Vibration? Random Walk?'

The duration of the 1921-1929 advance will be equal on March 17, 2017, one week out.

As offered above, there is a strong indication that if the SPX is magnetized to 2482, there will be a reaction first.

As flagged last week, 2401 sets up as resistance from where a presumed reaction will play out.

Why?

2401 aligns with early November, the major swing low) on my Square of 9 Wheel or Time & Price Calculator.

While, the SPX has knifed through several such square-outs during this runaway move, the important thing to understand is that not all square-outs are created equal: while every major top and bottom is a square-out and related in time and price as W.D. Gann stated, not all square-outs are major tops or bottoms.

That said, early November aligns with 2401.

Time points to price and price points to time.

In this instance, the time of the low may be pointing to the price of a high… perhaps not the ultimate high, but a meaningful high nonetheless.

Additionally, 49 was an important number in time and in price for W. D. Gann.

He considered 7 to be the “fatal number” and the number of time.

7 squared ties to the beginning of his so-called Death Zone.

For example the great crashes in 1929 and 1987 both began 49 calendar days from high.

2401 is 49 squared.

How will we know if a real reaction is going to occur from 2401 SPX?

During this stampede there have been only two small reactions, 1.2% and 1.9%.

A reaction greater than 1.9% is an indication of an ‘overbalance' and that a larger decline is on the table.

Additionally, the behavior of the 3 Day Chart and the Weekly Swing Chart should alert us to a large reaction.

Since the turn up from the election, the DJIA weeklies have turned down only twice. Each turndown on the weeklies defined a low consistent with the idea of a runaway move.

A strong reaction from here could easily pull back to the last breakout point around 2271-2283.

A break below that level could target the prior major resistance from August 2016 at 2194.

That ties to a 200 point decline or nearly 10%.

A pullback to 2194ish puts into play the concept of prior resistance tying to new support.

Theoretically, a checkback or backtest of prior resistance could perpetuate a leg up to our 2482 level.

If this scenario should play out, a recovery following a potentially steep selloff here would buff out sentiment and be the pinnacle of complacency — the poster child for But the Dip.

But, time is more important than price and the durations of the 60 year and 90 year cycles argue for a reaction to begin as early as this month into early April.

I believed that reaction would begin from early February, but the DJIA had a date with destiny in satisfying a 2 year inverse Head & Shoulders at 21,000.

There is a major cycle that was due to exert its influence to the downside in early February that also ties to the 30 and 90 year cycles.

However, with cycles of this length plus or minus a month is the risk.

At the same time early February was 90 days/degrees from the early November low.

When the market drove higher following this time frame it put early March which is 120 degrees/days up from low on the table. Of course, early March is the anniversary of the 2009 low and next week is the anniversary of the span of the Roaring Twenties bull run.

Conclusion. 

Similar to the behavior in the fall of 2012 when the market broke out and faked lower before exploding higher, in the fall of 2016, the above weekly DJIA shows a breakout over triple tops, a Rule of 4 buy signal, in July, 2016.

The backtest into the election proved tricky because it probed well beyond the breakout level.

It probed just deep enough to make the breakout look like a Bull Trap.

Fast moves come from failed patterns and in hindsight the large range weekly bar after the election reasserted the Rule of 4 Buy signal.

The election event setup something for bulls and bears alike: a Bull Trap could have played out but the second mouse got the cheese — just like after the election in 2012.

Strategy.

If a reaction does not play out from here, then our presumed 2482 target may be on the table this month.

The market came back from last January's plunge defying the January Indicator, the January Barometer and my December Indicator — all pointing to a down year for 2016.

The market came back from the Brexit Swoon and the Election Swoon in the U.S.

In so doing, players are plowing into the market. Money is being plowed into the SPY ETF by retail in a rate not seen in years.

Rafts populate the Lazy River, passive investment mind-set at the same time that cycles suggest the potential for a tsunami sometime in 2017.

This is the time to have a Buy, Hold and Sell strategy.