Jeff Cooper: The Emperor’s New Kimono
The record streak of 110 day days without a 1% or more decline on a closing basis ended on Tuesday.
Tuesday's stab down put a nail in the buying stampede that actually ended with an Exhaustion Gap on March 1.
The March 15 Fed Hike Spike put in a lower high with Tuesday's stiletto lower leaving an unequivocal pattern of a lower high and a lower low. In normal markets, that's what goes for defining a trend… at least the interim trend.
But in the recent bull market, price discovery has taken a back seat to the arranged marriage of Robots and Central Banks.
Their carnal knowledge has created a financial Medusa.
Every time the head of a rally is cut off, another one grows in its place.
The leading NAZ put in conspicuous sell signals on Tuesday, as we noted on Wednesday.
The question is whether Tuesday's resounding reversion to the mean is real or Memorex?
Was it a one day shake-out ala the August 2015 Chinese devaluation or is it a shot over the bow of the bull market?
The break in August 2015 was the largest one day point decline in history. It was not the beginning of something.
The break in January 2016 saw a comeback which flew in the face of the January Indicator, the January Barometer, and my December Indicator, which all projected a poor 2016.
When the Brexit came along, those fears seemed warranted.
Ditto the election with some of the best and brightest market soothsayers expecting a debacle if Trump won.
Well it was… for a few hours overnight.
The bigger the misdirection move, the bigger the ensuing slingshot?
Market participants' hair was on fire in January 2016 with the market skidding on the heels of oil.
Their hair was on fire with Brexit.
Their hair was on fire with the prospect of a Trump win.
Not now.
It feels like most market participants are taking the latest selloff and government dysfunction in stride.
Can Trump seal the deal, or will he find that doing business in Washington is like trying to grab a snake by the ears?
It looks like the SPX is backing and filling after a definitive sell signal.
With the markets coming off a series of the weakest internals at all-time highs in history as walked through ad nauseum in reports this year, caution is warranted.
Many momentous market cycles, geo-cosmic cycles and even Biblical cycles, which we will explore in Monday's Daily Market Report, suggest 2017 has a date with destiny.
But if Mr. Market has metastasized into a Medusa, the bears could get snake-bitten again if Tuesday's stab down is reversed.
Tuesday's sell signal is conspicuously obvious.
The question is whether it's too obvious.
As I say, the 1st mouse gets the squeeze (the first sell signal) and the 2nd mouse (the second sell signal) gets the cheese.
Our time/price square-out at 2401 looms large and the SPX is respecting that square-out. But if 2370 and 2401 are recaptured with authority, a last ditch run for the roses could play out.
The Bear did a good impression of Brutus on the Ides of March Fed Knife.
It remains to be seen if he has come to bury or praise the bull just yet.
If we should resurrect 2370 and then 2400, it will be a case of the Emperor's New Kimono.
That Kimono seems stitched together by the symbolism of the health care vote.
However, what we want to consider is what will happen beyond the vote. That outcome is not in the hands of Washington officials.
It is in the hands of the real driving force, the cycles which are reflected by the trends which have taken months and weeks to setup and are pointing lower — a last ditch run notwithstanding.
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