Has the Character of the Market Changed?
“Smoke on the water, fire in the sky.”
-Deep Purple, Smoke On the Water
Since the July top, the structure of the market has been corrective.
All you have to do is compare the complexion of the price action since the June low to that since the July top.
The question is whether the character of the market changed following the October 3 low.
It is possible the ping pong going on since the SPX July top is an A B C correction — A down into early August, B up into mid-September, and C down into early October –followed by potentially impulsive (bullish) action starting on October 3.
While bulls and bears have been frustrated, from my perspective, the upthrust last week through the key 2950 level has scared away shorts.
When the shorts leave the market, it sometimes sets the stage for a vacuum or Trap Door below the market.
That Trap Door is the 2950 region, the top of the August Jack O’ Lantern.
Perhaps last weeks spike on the smoke and mirrors trade deal used the covering fuel from shorts positioned for a repeat of last fall’s debacle.
Yesterday after the close, it was announced the U.S. House passed a bill supporting Hong Kong protestors.
China’s foreign ministry issued a statement condemning the bill and threatening retaliation.
For the two months, what looked like eggs turned into tennis balls. Every time the SPX threatened to break support, splattering the longs, it bounced.
Every trade headline has been a catalyst for a knee-jerk.
So it will be interesting to see what last night’s headline out of Congress precipitates.
Following Monday’s sluggish tape, the SPX exploded higher on Tuesday, kissing 3000 once again, a level that has proven elusive to capture.
It looks set to strike a new high. However, if it should do so, it will create a major negative divergence with the McClellan Summation Index, which is a long-term market breadth indicator based on stock advances and declines.
This is a big deal if it happens — a solid sell signal.
Additionally the SPX is back to Friday’s time/price square-out level.
On the Square of 9, October 15 is square 2998. The index closed at 2995.68 after hitting 3003 on Tuesday.
The blue arrow is Oct 16.
The magenta arrow is 2997.
The red arrow is 3040.
If the SPX has eyes for a new high into Friday’s option expiration, then it is interesting that late this week aligns with the 3040 region.
Is it possible yet another Bull Trap is on the table with a nominal new high?
We got one in September 2018 on a nominal new high above the January 2018 high.
We got one in May on a slight new high above the September 2018 peak.
We got one in July on a nominal new high above the July all.
Bulls will be balancing Fear Of Missing Out (FOMO) with Fear Of Trap (FAT).
What is scary is that 3003 calendar days ago from yesterday’s 3003 SPX high, a crash started on July 27.
Thg SPX plunged from 1328 to 1101 in 10 days, a decline of around 17%.
It is possible price may be squaring out with that time period.
It should be easy to tell, with a drop below the 2950 region signaling lower.
What is interesting is the date the crash in 2011 started, July 27, ties to this years top while the August 9 low in 2011 ties to the early August low here in 2019.
AAPL and ROKU exemplify the position of the market.
AAPL broke out above a Rising Wedge on Friday. Follow-through projects to 253 which is 2 cycles of 360 degrees up from its 142 January 3 low.
However, a move below the breakout presents as a Buying Climax.
ROKU knifed above its 50 day moving average on Tuesday but is back to the breakdown point and a 50% retrace.
135/136 is square this week.
Subscribers caught the leg up from 105 but we missed yesterday’s pop.
Conclusion. On October 3, the SPX left bullish Train Tracks following a test of the August triple bottom.
Sustained breakage now back below 2950 puts a trendline connecting the August/October lows is in the cross hairs.
This trendline now converges with the 200 day moving average.
The implication is that if 2950 is lost, a swift move to 2850 is on the table.
If this plays out and the 2850 area doesn’t hold, a Rule of 4 Sell signal will be triggered, which typically perpetuates acceleration.
Alternatively, the market could march to a new all-time high if it captures 3000 on a closing basis.
However, the lack of participation yesterday in yesterday’s rally by glamours like COUP, MDB and OKTA suggests speculative sentiment may not be what it seems to be here.
99.999% of traders have never even seen the Square of 9... let alone understand its potential.
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