A Violation of SPX 2900 Could Break the Bull’s Back
Friday is quarter-end and also 90 days degrees from the last swing lows on the SPX and DJIA.
Last week we mentioned that Gann Day, September 21/22, translated to a price of 2945 SPX.
The index reversed from a high of 2941 on Friday.
Was that close enough for government work?
The short answer is maybe because on Monday, the SPX gapped lower leaving a possible Island Top.
That said, the market didn’t accelerate lower after probing the late August square-out high of 2916.
Remember that 2916 is 54 squared and as W.D. Gann stated we tell the cause and effect in the market by the square of odd and even numbers.
Wednesday is Fed Day and a rate hike is a fait accompli. The only question is whether Powell will hike a ½ point given his recent comments that he is looking at asset inflation.
The usual pattern for the arbs is to short Monday and Tuesday to position for a rally on Fed Day. However, IF a half point hike should be on the table, they may find that they aren’t short enough.
On Friday, quarter-end, the Square of 9 aligns with 2942 so a possible test of last Friday’s highs could be on the table.
Alternatively, downside with authority below the August 29 high of 2916 requires respect with a 3 month trendline coinciding with the 20 day moving average at 2900.
The 20 day m.a. has acted as support since the June 28 swing low except for one flush out day in August.
So it looks like we will know by Wednesday whether the scenario is a quarter-end mark up prior to a possible hunt for red October and liquidation prior to the mid-terms.
An hourly SPX shows the index perched on a trend channel since early September.
The bottom of the trend channel currently coincides with a 50 hourly m.a..
Downside will trigger an hourly Rule of 4 Sell… a break of a 3 point trendline.
This in turn should perpetuate momentum to the key 2900 level.
Interestingly, there is a little Head & Shoulders top formation on the hourlies that also projects to 2900 on further downside.
So it looks like 2900 and 2940ish are the inflection points going into quarter end with the index closing right at the mid-point of this range at 2920 to kick off the week.
Notice how the possible Island Top on the SPX is clearly defined on the hourlies.
If the index can offset Monday’s open gap, the implication is that the trajectory is higher into Friday’s quarter-end.
While the FAANG’s were rebalanced down on Friday’s reweightings. they were on the prowl yesterday bouncing back after opening down-spikes.
AMZN and NFLX both had impressive reversals, as did FB.
Many of the tech leadership glamours also bungeed off opening lows.
Names include SQ, TEAM (from the nightly report) EXAS, which left a Peekaboo Closing High buy signal and should be on the long radar today, NVDA which reversed of its 50 day m.a. and W (which was on last night’s buy list).
SHOP was a short idea for Monday that saw a quick 2 point plunge after the open and a just as quick rebound while TDOC, a long from the last report, exploded from the get-go only to leave a Topping Tail from record highs.
Recent IPO BE put in a good showing, closing at a record highs and flirting with a breakout over little triple tops.
Basically, the strength was FAANG and oil with pressure across the tape elsewhere especially in the Chinese names.
In the oils, EOG and EGN led.
In the Chinese column, our JD short got hit hard. Ditto BZUN and WB.
Regrettably, we got stopped out of the 2nd piece of our BABA short last week before it tanked, but I would print out the chart which shows a crystal clear reversal from the 170 strike on Friday on a Pinocchio of its 20 day m.a.
Other uptrending names of interest that showed pullback reversals on Monday were OKTA, HUBS and FTNT.
Last week the DJIA broke out above a 3 month channel. It is backtesting the breakout point back below which with authority leaves the DJIA suspect.
Last Thursday’s all time high was 26,769.
Rounding off and moving the decimal to work with the Square of 9 gives 268 which is 180 degrees straight across and opposite September 3, a date of destiny, the high in 1929.
At the same time. we are a Fibonacci 89 years from 1929.
Back below the aforesaid trend channel with authority leaves the DJIA suspect.
Follow-through below a 3 point rising trendline (blue) near 26,400 raises a caution flag.
Conclusion. W.D. Gann stated that trend changes often occur around the end and beginning of new quarters.
The January ramp began on the 1st trading day of Q1.
A rally off a W Bottom began from an April 2 low that continues to this day.
It will be important to see how the market behaves as October starts given a confluence of omens, in particular a flotilla of Hindenburg Omens.
For the first time in 15 consecutive sessions there is was no Hindenburg Omen on Monday.Why? Because the new highs have dropped way below the criteria.
There were large clusters of H.O.’s before the big market tops in 2000 and 2007. However the number of H.O.’s now is much greater than either of those prior periods and the number of days of consecutive H.O.’s is also much greater.
While this is significant all by itself, it is even more significant if there are other reasons that suggest the market is at a risky level, at a risky time period.
We have explored some of those time and price harmonics and will examine more in tomorrow’s report.
Suffice to say that while time turns trend, price is the final arbiter. It is price that pulls the trigger.
It looks like an authoritative break of 2900 SPX may be the price of the bull, the straw that breaks the back of the bull going into the 4th quarter.
Positions in SPXS, UVXY, WB, BE
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