The Plot Thickens – T3 Live
T3 Live

The Plot Thickens

“The automated teller machine is the only financial innovation of value.” Paul Volcker

I started my career in August 1982 at the famous Drexel Burnham Beverly Hills office.

The market exploded the week after I started. I will never forget Mori, the biggest broker in the office, who had taken me under his wing pounding his desk as he stared at his screen on Thursday August 12th shouting, “I’m verrrry bullllish.”

Everyone in the office looked at him like he was crazy.

I had no idea what he was looking at.

The next day, Friday, August 13th, 1982 the great bull market of the 1980’s, which would become even greater in the 1990’s was born as the DJIA leaped 11.13 points.

Yes 11.33 points.

But that was 1.4% from its prior close of 777—almost precisely where the index had closed in January 1964.

The next week on August 17th, Henry Kaufman of Solomon Brothers said that Treasury yields had reached their highs and stocks exploded again.

In retrospect I can’t help but wonder if the buyers on August 13th weren’t in the loop as to the change in complexion by Kaufman —known as Dr. Doom.

The prime rate (the interest rate at which banks provide their best customers with credit) reached 17% in April 1982.

The unemployment rate reached a high of 10.8% that year, exceeding the rate seen in 1974.

Here we are 37 years later and ostensibly, the market has exploded again, this time to the downside.

The SPX shed over 6% in 6 days into August 5th.

Except—10 year yields are at historic lows.

Except— unemployment rate is at historic lows…if you ignore the participation rate.

It’s like a mirror image of August 1982.

With one big difference, after 10 years the whiff of recession concerns are in the air and the Fed is low on ammo.

So, it seems that rather than wait for unequivocal signs of recession they are to pre-empt with an insurance policy inoculation against a recession.

Just like the brokers in Drexel looked at Mori in August 1982 like he was crazy, most market participants don’t see anything different about the market today—the recovery off the early August low ‘proves’ it’s business as usual.

Cycles and the price structure suggest otherwise.

Like the gunfight at O.K. Corral, in the wild wild west, today will be a shootout between the bulls and the bears as Jackson Hole not Tombstone, Arizona takes center stage.

Today we should see whether the market breaks out or breaks down.

A break back below this weeks low and then 2880 SPX will put in a Tombstone Top

The tombstones are the January 2018 SPX top near 2880 and the September and May 2940-2950 tops.

In July the SPX cleared these triple peaks but reversed with authority back below these peaks in August carving out what looks like a Megaphone Top…projected in this space early this year.

Now the index has rebounded to backtest the prior peaks. It’s decision time and its late August.

“Price forms a triangle. The normal expectation is for a breakout over the triple tops around 2940.

However, the aforementioned NR 7 Day implies a Triangle Pendulum may be on the table—a false breakout with a subsequent stab below the triangle.”

We wrote the above in Thursday morning’s report.

A 10 min SPX shows the SPX broke out toward 2940 and immediately knifed lower.

This week’s 10 min formation looks like a fractal of the weekly chart from January 2018 as well as the dailies from late July.

The SPX knifed lower last fall from a new high and rebounded on the weekly fractal.

On the daily fractal, the SPX dropped sharply from late July and rebounded into yesterday’s open.

Now we’re at an inflection point.

Is this a bearish retrace or does the August low represent a bullish correction low?

Every time the majority of this years leaders rally, they get hit.

This smacks of a distribution process by the big money.

If the market spikes for some reason today on Powell’s comments, I expect the glamours to be sold again.

Conclusion: Nature doesn’t forget. Neither should we as traders. W.D. Gann’s research show that major events create ripples in time and space that project far into the future where they present themselves as ‘resistance points in time that often oppose ongoing trends.

This August is also the anniversary of the 1987 top, the top following the August 1982 low.

It also ties to the 1929 high.

We should view this important market anniversary nostalgically—for all the potential once possessed and the potential being squandered.