Volatility Has Woken Up. Will the SPX 200 Day Hold? Will Gold Explode Again?

Last week we said: the markets have hit extreme price levels and a correction should begin soon.

However the market has something in common with Cheech and Chong: it is always looking for one more high.

That new high kicked off the week with an Opening Spike Reversal on Monday morning at 2817.

The reversal saw the SPX plunge to test its 20 day moving average for the first time since reclaiming it on January 7.

The first pullback to the 20 day in a strong uptrend should define support.

However, our presumption was 2740-2750 would be hit.

In part this was based on the bearish inverted Cup & Handle pattern shown in yesterday’s report.

The SPX’s inverted Cup & Handle in combo with a possible Rule of 4 Sell on a break little 3 point trendline suggested 2740-50 was on the table immediate if we saw any downside follow through.

We did and the SPX tagged 2739 on Thursday.

The other compelling factor in this weeks correction were the two square-outs on the SPX noted earlier this week.

To recap, March 6th is a Master Square because it is the low of the last bear market.

On the Square of 9 Wheel, (a spiral number grid surrounded by the days of the year to allow one to calculate time and price harmonics), March 6th is square 2790 and aligns with or is conjunct 2738.

Following Monday’s signal bar reversal day, the SPX closed precisely at 2790 after getting hit on the runoff.

Yesterday the SPX drove to 2739.

I never cease to be amazed by the innate underlying geometry of the market and the power of the Square of 9 to reveal the trajectory of the market.

The SPX bounced in the late going on Thursday but is right back to this 2738 region pre-market.

What now?

Using the 2817 rally high we know that 2765 is 90 degrees down.

The SPX isn’t going to be having any more new highs unless it clears and sustains 2765.

180 degrees down from 2817 is 2713. So if this 2740 region doesn’t hold the likelihood is that the index will be magnetized down to the 2700 region.

As the above daily chart shows this 2700 region ties to the SPX’s trend channel for 2019 so far.

It also ties to the 50 day moving average.

Yesterday the SPX closed right on its 200 day m.a. If the index closes below it on the important Friday weekly closing basis it suggests Moving Average Pinball with the index pushing to 2700 strike for the big quadruple options expiration next Friday.

The SPX has not turned its 3 Day Chart down all year. It satisfies this with 3 consecutive lower daily lows.

We have two on the clock now.

A lower low below Thursday’s low today turns the 3 Day Chart down.

If this occurs at this possible 2739 region and we hold, we could bounce.

At the same time after the February breakout above the 200 day m.a. the normal expectation is that a backtest of the 200 day will define support and a buying opportunity—at least for a test of recent swing highs.

So, a failure of a low to play out on a possible turndown of the 3 Day Chart in tandem with a failure of the 200 day to define support argues for lower prices.

And, and we have stated, caution is warranted on any failure because it is possible that a big B Wave rally has completed off the Christmas low.

In other words following a sharp A Wave decline in the 4th quarter, we got a corrective B Wave. If so, then a sinister C Wave decline could be on the table.

On Sunday Fed Chairman Powell is on 60 Minutes. He’s not on alone. Apparently the Fed Head is now the Fed Medusa as Bernanke and Yellen are supposed to appear with him.

Clearly, they have something to say or they have life preservers to throw out in the brink.

My gnome reminds me that Nixon closed the gold window on a Sunday.

So let’s take a look at a GLD chart shown recently in this space.

GLD has pulled back to an important region at the bottom of 4 month trend channel.

Importantly, the dollar rallied sharply yesterday and follow through is a breakout.

While gold was flat yesterday, the miners rallied in the face of dollar strength.

GDXJ rallied off the bottom rail of a trend channel and is up this morning.

GDXJ has head room to 33 as I see it.

This will be the key region. It could install a right shoulder there.

However, clearing 33 implies new highs.

The miners should have a tailwind today possibly on anticipation of The Fed Punch & Judy Show on 60 Minutes.

It will be fun to see how they act on Monday.

Pos SQQQ, AG, AEM, SBGL