Jeff Cooper: Has the Bull Left the Building?
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As mentioned, the Gann Panic Cycle was due to bottom last week counting from the October 3 breakpoint versus the absolute September 21 SPX high.
Last week also ties to the Gann Decennial Cycle, which saw a washout/crash low around the world on November 21st, 2008.
The end of November also ties to the beginning of the blowout rally one year ago.
Either way, the market is washed out short-term, or it’s washed up with a break of 2600 leading to a fresh leg down and year-end liquidation.
It feels like too many players are positioned for that break here and now. At the same time, forced selling may have created an upside air pocket in tandem with too many leaning into 2600.
As flagged on Friday, it looks like a recovery on the weekly time frame for at least a 1 to 2 week rally, or money managers will be on the ropes to salvage what performance they can for 2018.
There is hope for a rally/recovery as Friday may have been a 5th wave decline on the hourlies from the last pivot high around 2745.
At the same time many big go-to names saw strong signal reversals from Wednesday’s gap down open.
Names include SQ, WDAY, RP, BL and SHOP to mention a few.
We sent alerts to buy SQ, ETSY, W and XLNX, among others.
Additionally, Friday’s SPX selloff may have set up my Flying Elvis buy pattern.
This occurs when there is a flush out reversal (Wednesday morning) from a strong decline followed by what looks like a failure (Friday) only to see the rip cord pulled on the parachute on day 3 of the pattern — today.
Judging by the strong showing in the futures as I write this on Sunday night, Monday may confirm this bullish Flying Elvis pattern with stocks hoisted higher rather than a hard landing below 2600.
This is the hope of the pattern of many glamours.
As always, follow-through will be key as up opens are infamously untrustworthy in bear phases.
However, if the open is up big and sticks the ‘hook’ will be set. The bigger the hook the bigger the rip cord on this potential Flying Elvis set up.
Conclusion.
So this is it… at least for an oversold rally following a test of the Hunt for the Red October we expected.
The reasons I believe the odds favor a rally of some degree are as follows:
1) Multiple cycles culminated last week, and as we told subscribers, the turn was due over the weekend with a conspicuous turn set for Monday if indeed the cycles were going to exert their influence. In addition, to the 180 day/degree cycle from the April 2 low that hit in early October prompting us to warn that the Red October we saw was in the cross hairs, 270 days/degrees from the primary January 29h high ties to late November. This factors into a cyclic test of the October low as well. It’s always plus or minus a few days, but this means we must be vigilant about the possibility of a pivot high into the end of the week –especially if the SPX is at 2690 to 2720 at that time. Importantly, note that 270 days/degrees from the Feb 9 low of the year ties to the last major pivot high on November 7. At that time the SPX was 185 points higher. The break came precisely on November 9 — 270 degrees from Feb 9.
You can’t make this stuff up.
2) While it seems most players have been looking for a test of the October 2603 low to determine which way the wind was blowing, the market seldom accommodates and TIME TURNS TREND… not price. And, it may be that time was up… at least in the short term — at least for a good counter trend rally. The sentiment is dark and confidence broken with the FAANNG’s getting root canal so the likelihood is most will see a rally as just a squeeze. That may well be true but we just saw a 200 plus point squeeze higher in the midst of a selling storm. Look at how sharply many of of the big NAZ names rallied just on Wednesday. Remember many good rallies start with short squeezes — they have to start somewhere.
Above 2690 targets 2723 which is the midpoint of the 2815 to 2631 recent range. Clearing that opens the gate for a challenge of the mid-point of the year at 2737 where the SPX was rejected on Nov 16. Above that opens potential for a push.
While the 2603 level has been the focus for a successful test of the October low, it is worth noting that the October closing low was 2641.85. Last week’s lows may have satisfied the idea of a test. This MAY be a ‘successful’ test on 5 waves down on the dailies from October 3 at the same time that the SPX is testing a WEEKLY trendline connecting the Feb/April lows.
3) 5 waves down from October 3rd can be counted in league with a test of a weekly trendline for the entire year.
The key to something more sustainable than an oversold bounce will be offsetting the open gap from Nov 20 at 2690.73.
This ties to the 50 day moving average currently at 2793.
Strategy. If the first pullback today sees an extension higher and an Opening Range Breakout that will probably indicate a trend day underpinning the idea a turn of some degree is on the table if the hourly gap from Friday at 2650 is cleared.
If so, the 50 hour moving average at 2686 is in play.
Earlier this year, we wrote an article Slaughterhouse Five where we warned that if January represented a blow-out top a la the false breakout in January 1973 with 5 waves up from the 2009 low complete that a conspicuously pernicious change in the complexion in the market would play out.
The January top was tested in keeping with the Matterhorn Top analogue shown in this space from the year 2000 when a 1st quarter spike high saw the plug pulled in the 3rd quarter that year.
So this is what we have to be concerned about –rally phase or not.
A break of the October lows with authority will trigger a weekly Rule of 4 Sell signal projecting to 2320 SPX.
Be that as it may, it looks like the market wants to attempt a relief rally.
The SPX just carved out a decline which mirrors the February decline in some respects.
However this time all the glamours were taken to the woodshed including the A Team, AAPL and AMZN.
From the January 29th peak the SPX installed a successful test on April 2 .. around 60 calendar days later.
From the Sept 21 all-time SPX high 60 days gives November 21.
From the October 3 test failure high 60 days gives December 3rd.
We’re in the Wheelhouse.
The declines are similar.
And, the October low has been tested in a similar manner to which the Feb 9 low was tested initially in March and then in April just as perhaps the October low is being tested in November.
There is a consistent 2 year cycle low that has been playing out with fall troughs in 2012, 2014 and 2016.
It will be important to see what the market does this time around in 2018.
If the cycle fails and 2600 breaks, watch out below.
P.S. While I have been allowed to return to my home in Malibu after the firestorm, there will be no power in my area until Friday I am told…so for now, no charts as I am still working remotely.
Pos SQ. ETSY, XLNX
Editor's Note: Our Cyber Monday sale ends tonight. Click here to save 90% on the Daily Market Report, which includes Jeff's morning newsletter, a nightly report with 3-6 new ideas, and an exclusive Private Twitter feed for real-time updates. This deal ends at midnight – don't miss out!
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