A Bear Market In Follow-Through

“I always laugh at people who say “I’ve never met a rich technician.”

I love that! It’s such an arrogant, nonsensical response. I used fundamentals for 9 years and got rich as a technician.”
-Marty Schwartz

The July 26 SPX top led to a 200 point drop in 5 days.

Since then, the market has been mired in a chop tournament.

The wide swings of August eventually stabilized, leading to a test toward the July high, followed by another choppy downside trajectory.

The SPX hasn’t made a new high since July 26.

Something must have been going on with that top.

There was.

July 26 aligns with 2872, which was the momentum peak in late January 2018.

Moreover, the 3025 high is 55 squared.

W.D. Gann stated, “We use the square of odd and even numbers to get not only the proof of market movements, but the cause.”

The green arrow is 872 for 2872.

The red arrow is July 26

Additionally, from late January 2018 to late July 2019 is 18 months or 540 degrees/days.

This is a very important time factor.

Why?

Long-time readers will recognize that 540 degrees in time or in price is a true square or cube.

This is because a cube has 6 sides with 90 degree angles and 6 X 90 = 540.

The implication is that July 26 was an important square-out.

Either it is going to precipitate a meaningful decline… at least to/below the 2822 August low. Or we'll get a leg up once the July high is cleared on a sustained basis.

While it led to bloodletting in the high-flying momentum glamours, the index itself has remained near all-time highs.

The choppy take is consistent with the position and complexion of the market:

Has the benchmark SPX carved out a double top or is it working on a 2 month Cup & Handle?

We either getting beaucoup distribution or consolidation accentuated by the selloff in momentum.

With quarter-end over and the potential ‘calming’ effects of window-dressing mark-ups, we will see how October breaks, especially with this week being the one year anniversary of the beginning of Red October 2018.

Likewise, we are approaching the 12th anniversary of the October 2007 bull market top (144 Fibonacci months).

The time period to watch here is roughly 90 days/degrees from the July 26 high, which ties to late October and the 90th anniversary of the crashes in late October 1929.

At the same time, we see some signs of bottoming in key momentum names such as SHOP and CRWD.

SHOP struck a high on August 27 at 409.60.

August 27 is square 285.

Last week, SHOP traded to a low of 286 where it left huge Train Tracks (29 points).

409.60 is 180 degrees straight across and opposite October 1.

The red arrow is August 27.

The green arrow is 285

Recent hot IPO CRWD struck a high of 101.88 on August 20.

Yesterday, it reversed sharply from a 1st hour spike low of 51.61, closing at 58.31.

The drop from the 102 region to the 51 region satisfied a geometrical 50% Rule, a time to look for a turning point, if not for an outright change in trend, a significant counter-trend move.

Additionally, 52 aligns with early October on the Square of 9 Wheel.

The green arrow is 52.

The red arrow is early October

Likewise, NFLX, which has been in a downward spiral, left large Train Tracks last week.

During the past few weeks, the miners have gotten hit.

We know that early September is an important vibration for gold as it marks the all-time high from 2011.

In early September, GDXJ tested the August 7 signal reversal bar (Gilligan).

It looked like GDXJ was turning the corner last week when it cleared and closed above its 50 day line.

In hindsight, that was a hook for the subsequent waterfall decline.

The immediate reversal back through the 50 day moving average smells like a setup.

It has the fingerprints of someone who doesn’t want gold higher.

Who could that be?

The Fed knows it is in a box. If it has to bring a new round of QE or some other newfangled device out of its tool box, it doesn’t want to do so with gold on the march to 2000.

Better to take the stuffing out of the bullish sentiment first.

You’ve all read about the JPM traders being investigated for ‘manipulating’ the gold market.

Were they minions of the Fed?

Some are saying it’s 2016 all over again.

I don’t think so.

Remember, gold itself reversed from a logical level of 1560-65.

This represents a 50% advance from the bear market low in December 2015.

Gold and the miners didn’t turn on a dime at that time. That’s typical of the markets. They seem to always have a way of luring you to stay in and setting up a hook until the plug is pulled.

What was talking louder than GDXJ was the Key Reversal week in GLD on the week of September 2.

It’s good to be a technician.

Well, we just got a good old fashioned plug pull in the miners.

While GDXJ shows what looks like a Head & Shoulders Top (double heads), it also shows 3 drives down toward the breakout point.

Moreover, GDXJ launched on May 23. May 23 aligns with 36.

GDXJ struck 36 yesterday.

The green arrow is May 23.

The red arrow is 36.

Additionally, yesterday GDXJ tagged its rising 20 week moving average yesterday for the first time since the rally began.

Likewise, our old friend silver miner AG struck a low of 5.48 on May 24.

To work with low-priced stocks on the Square of 9, we move the decimal point to get 54.8 and round to get 55.

360 degrees up from 55 is 89.

Moving the decimal point back, we get 8.90.

Yesterday, AG pulled back to hit 8.91.

The red arrow is 55.

The green arrow is 89.

Notice how 89 is a full square or a 360 degree price cycle up from the ‘55’ low.

So we have a setup. Now we have to see if the metals respond.

Strategy. They say, be aggressive in a trending market and conservative in a choppy market.

It’s good advice.

But as hedge fund wizard, Paul Tudor Jones says, “I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.”

How you determine the turning points is the question.

I know of no better way than by combining the unique aspects of the Square of 9 with the action of the final arbiter itself, price.

Position in SHOP, CRWD, AG