What You Need to Know About the SPX-Oil Connection

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The bulls and bears are caught in the crossfire in the second longest and third greatest bull market in U.S. history.

This is occurring as oil is spiking into a crossroads.

The longest bull market was 114 months, from October 11,1990 to March 24, 2000 (SPX). It was the 2nd greatest with a gain of 418% .

From the March 9, 2009 low to June 2018 will be 111 months. So the current bull market will be the longest if it can score new highs after August.

The bull market from August 24, 1921 to September 3 1929 was the 3rd longest at 96 months and ranks number one in gains with 495.2%.

The bull market from July 8, 1932 to March 10, 1937 was the 2nd greatest gaining 371.6% but was only 56 months long.

The current bull market into January gained 306.5%, ranking 4rd of the greatest bull markets.

Notice that at 56 months the bull from 1932 to 1937 was roughly half that of the bull that ended in 2000 and half that of the current bull market (assuming the bull is still intact and makes new highs).

It is also interesting that the start of the bull in late August 1921 ties to the end of the bull in 1929 and 1987.

Additionally the start of the bull on October 11, 1990 ties to the end of the bull in 2007.

Likewise, the end of the bull market on March 10, 1937, the advance after the crisis ties to the bottom of the bear market on March 6, 2009, the low after the crisis.

W.D. Gann was a big believer in the importance of anniversary dates in the market.

Interestingly, two great bull markets, 1921 to 1929 and 1932 to 1937 occurred roughly back to back within the context of an intervening crisis.

This echoes the 1991 to 2000 bull market and the intervening in the greatest crisis since the Great Depression in 2007-2009 which has been followed by a great bull market since 2009.

History shows that major events create ripples in time and space that project far into the future where they present themselves as resistance points in time.

Most indicators fail because they are calculated from a price. The driving force for the market is time. Analysis based on price cannot predict market movements.

As W.D. Gann stated, "TIME is the most important factor in determining market movements and by studying the past records of the averages and individual stocks you will be able to prove for yourself that history does repeat and that by knowing the past you can tell the future."

Let's take a look at the cycle in crude oil which has been on fire.

Below is a monthly oil from January 2006 which shows a 28 to 30 month cycle.



Oil set an important high in July 2006 (note the primary high 3 months earlier).

Oil exploded when it traded through the July 2006 cycle but the significance of that periodicity saw it collapse into the 28-30 month cycle low in January 2009.

From there oil rallied into the next cycle high 27-28 months later in May 2011 which perpetuated a decline.

The next 27-28 month cycle defined a high in August 2013.

Oil did not initially fall out of bed but when it backtested a descending trendline from the all time high it collapsed to new lows in Jan-Feb 2016 in keeping with this 28 -20 month cycle.

Long time readers will recall the time price square-out at $26 we flagged at that time.


(click here to enlarge)

From a yearly and quarterly cycle perspective, from the May 2008 top, a 5 year high to high to high cycle is targeted anywhere between here and August 2018.

Is it possible geopolitical events could cause a surge in oil into Q3, 2018 just as the Iran deal withdrawal has elicited the latest spike in oil?

If so an intervening high would probably play out here in late May.

Correlation is not cause but as you can see from the above chart of oil there is a conspicuous and intriguing relationship between the SPX and oil.

W.D. Gann said, "It is very important to watch the date when an individual commodity (or stock) makes an extreme high or low. The first important time period to watch from any anniversary date is the third or fourth month."

So the bulls and bears are caught in the crossfire of a historic advance which appropriately enough has carved out a huge indecision pattern, a 4 month triangle.

The SPX hit a blow-out high in late January. 2 months later the NDX set a high in March. 2 months later the RUT is making all-time highs here in May.

The question is whether a rolling 2 month distribution process is in play or whether the breakout in the SPX of a 4 month triangle two weeks ago represents a start of a new up-leg.

In keeping with the aforesaid Gann quote, on  May 3, roughly 3 months from the January 26 extreme high, the SPX left multiple buy signals: a 10 day Bottoming Tail (Lizard) and a Bear Trap low on an undercut of a previous 20 day low (Soup Nazi).

The best momentum in months unfolded from the May 3 low perpetuating a breakout on May 9.

4 months from the January 26 extreme high ties to May 26.

There is also an important natural Gann Cycle that last hit on January 29 ( 3 days after the actual high) that is due to exert its influence around June 1.

It could be either a high or a low. It is a directional cycle, which means that whatever way the market turns at that time should be the start of a solid move.

It is worth noting that May 19 is an important anniversary extreme--- That was the pre-crash pivot high in 2008.

May 3 was an extreme high in 2011.

May 22 was a pivot high in 2013 prior to a quick  100 point plus decline.

May 20 was an extreme high in 2015.

May 19 was a pivot low in 2016 prior to a quick 100 point rally.

May 18 was a pivot low in 2017 prior to a quick 100 point rally.

It is worth noting that blow-out rallies occurred from May lows in both 1929 and 1987.

Conclusion.

This week sets up as a good test of the trend and a resolution of the oil and SPX cycles. The presumption is there will be one last leg up to an important high near the end of May or we will start a leg down which could theoretically bottom at the end of May.

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