Is a Break to SPX 2300 on the Table In March?
The 3 Day Chart was an important tool in W.D. Gann's quiver.
He never specifically revealed how he used it — just to say “watch it for indications of a change in trend”.
The majority of the time Gann wrote in the manner of the ancient mystics, hiding the real meaning below the surface explanation.
I have an old book wherein there is a copy of a note W.D. Gann wrote in his purple pen to Gann's last private student.
The note comes at the bottom of a printed sentence:
“The surest sign of a change in the main trend (at least temporarily) is when a move on the 3 Day Chart is exceeded (meaningfully).”
The note in Gann's own distinct handwriting says, “use 2 day charts and rules with 3 Day,”
I had no idea what that meant or how to combine the two.
But, given that Gann wrote this note shortly before his death to his last student, I assumed it was important.
After years of study, the light went off and led to my developing my Plus One/Minus Two Buy Method and its inverse, the Minus One/Plus Two Sell Method.
These are methods I have explained in this space to one degree or another over the years.
I fully explain this unique method to my private students in conjunction with the use of the Square of 9 Wheel.
Combined, they are a powerful indicator for identifying a change in trend.
An SPX daily from the pre-election low shows the important 3 Day Chart turned down yesterday.
This was only the 4th instance this occurred since the Trump Stampede started — not coincidentally at the 200 day moving average.
The first turndown on the 3 Day Chart since early November occurred on December 30.
The second turndown occurred on January 12.
A third turndown occurred on January 31.
Notably the prior three turndowns defined lows, which is the expectation if the trend is strongly up.
Yesterday, the SPX 3 Day Chart turned down once again.
The presumption is if the trend is still strongly up, this turndown will define a low soon in terms of both time and price.
Importantly, Tuesday's turndown in the SPX 3 Day Chart ties to Gapfill from the State of the Union Gap from last Wednesday.
This is an interesting juncture because if the gap is offset in tandem with a failure of the turndown in the 3 Day Chart to elicit upside traction, the indication is lower prices.
At the same time the above chart shows the 20 day line ties to a rising trendline from the pre-election low.
The 20 day line typically acts as support in a strongly trending tape… brief undercuts notwithstanding.
This has clearly been the case since November.
Note how every 1 day or TWO day peek below the 20 day defined a low.
Currently, the 20 day line and the rising trrendline tie to 2350ish.
This is a pivotal level because it ties to a 90 degree price decline (2353) off the 2401 all-time high from last week.
Markets typically do not exhibit declines of more than 90 degrees in runaway moves.
If 2350 is snapped, the indication is the heat is off the buying stampede.
It suggests a decline to 2305, which is a 180 degree decline from 2401. A decline to 2305 satisfies a pullback to the 50 day line.
Deterioration in breadth continues to accelerate: while the SPX is where it was one week ago, breadth is almost 4000 units lower.
The indices should play catch-up to the internals. This often happens abruptly — especially with trailing stops being cinched up with the SPX' vertical move.
A slide to 2300 should emerge.
Prior resistance at 2300 should define new support — especially since the 50 day line has not been tested since the SPX knifed above it after the election.
If the Slim Jim (tight consolidation) traced out from mid-December through January 23rd is violated with authority, it will be a bearish signal. Perhaps an intermediate term sell signal.
Going back to the my Plus One/Minus Two Method, there is a possibility its corollary, the Minus One/Plus Two sell pattern will play out prior to Friday's jobs report.
Why?
The 3 Day Chart is pointing down; consequently, 2 consecutive higher daily highs over the next two days will put the SPX in this sell pattern
before Friday's numbers.
The SPX left an Island Top in late January.
It turned out to be a failed pattern.
Fast moves occur from failed or false patterns.
Once the Island Top was offset, the index exploded in a runaway move to 2401.
Markets don't like to do the same thing twice in a row. If the SPX gaps down over coming hours/days it could leave a second Island Top.
The second mouse may get the cheese for the bears if a second Island Top emerges.
This may be ‘short-term' cheese ala a push to 2300, but of course, every major trend must start with one step… or one misstep.
That step may have started from a spike to 2401 last Wednesday.
2401 is a level we've had on the radar.
It represents 49 squared.
W.D. Gann stated 7 was the number of time. 7 squared is 49, the beginning of Gann's so-called Death Zone.
The crashes in 1929 and 1987 both started 49 days from their highs.
49 squared is 2401.
Conclusion. There is reason to believe that the spike on a gap to 2401 was an exhaustion move in the near term.
If the SPX falters here with the 3 Day Chart low failing to act as support followed by a snap of 2350, a downside acceleration should be on the table.
March is a month that has seen landmark turning points.
March 6 was the high on the 80-year cycle in 1937.
We have discussed at length over the last year the significance of the Biblical 40-year cycle.
Every 40 years or so something bad happens in the markets and the economy. Every 80 years or so something really bad happens in the markets and the economy.
It is fascinating that the March 6, 2009 low was 72 years or half a Fibonacci 144 years from the March 6, 1937 high.
March was the high in 2000 and there is a conspicuous 17-year cycle from the big 1932 low that has called major turns.
We are, of course, 17 years from the 2000 top.
It is going to be important to observe the price action this March.
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