That Little Record Machine

“You got to roll with the punches to get to what’s real.” Jump, Van Halen

Fast moves often come from 3rd higher lows.

This weeks Gap & Go to new record highs in the SPX was perpetuated by a 3rd hourly high.

Yesterday the SPX tested a trendline connecting the April and July tops.

It was the 3rd tag of the trendline.

Importantly, this trendline is the upper rail of a trend channel that parallels a rising trendline connecting the weekly lows in late May, the August lows, and the October low.

3 points on the top trendline… 3 points on the bottom trendline.

Three is a magic number in the markets.

Often we see 3 drives to a high or 3 drives to a low.

The Elliott Wave principle holds that an advance plays out in 3 impulsive waves.

Head & Shoulders patterns comprise 3 points.

Ditto a Cup & Handle (the left and right side of the Cup with the 3rd reference point being the Handle).

Then there is my 3 Week Chart Method that does a good job defining intermediate term trends and the 3 Day Chart Method that does a good job defining short term trends.

So now the SPX shows 3 drives up to a 7 month pattern.

Sentiment is off the charts. Is there anyone on the Street that doesn’t think a Melt Up/Mark Up into year end is on the table?

Bears are in the fetal position given that their back is against the perpetual record machine of new highs against the dance floor of December seasonality.

That the market ‘always’ goes up in December seems a fait accompli presently.

That Santa was MIA last year is a distant memory, an outlier.

With FOMO (Fear Of Missing Out) foaming from the bulls mouth and the runaway biotechs (KRTX) sparking greed, is there a motherlode of unspent buying power yet to be tapped?

Maybe something, maybe nothing, but in addition to striking the aforementioned 7 month SPX channel being tested, the index struck a magic Gann level yesterday.

This is 56 squared, which is 3136.

Allow me to explain.

You see, W.D. Gann was the first to recognize that panics often begin from around the 56th day from an important high or low.

Two of the biggest examples are the 1929 crash which occurred around 56 days from a high.

Ditto the 1987 crash.

The same has been true of blow-off tops culminating around 56 days from a pivot low.

A good example is the final run into the October 11, 2007 top that started from an August 16 pivot low.

The SPX blew off 206 points or apx 15% in less than two months.

The SPX spike into late January 2018 started roughly 56 days earlier on December 7.

The SPX ripped from 2624 to 2872 during that stretch, roughly 10%.

The runaway move was followed by a sharper 340 point plunge in 10 trading days.

The current run in the SPX started from a low of 2856 on October 3.

Today is the 56th calendar day from October 3.

The SPX has rallied 10% in this time period.

56 squared is 3136.

Yesterday the SPX closed at 3140.

As I said, maybe something, maybe nothing.

In addition to new this week’s SPX broken records, underpinning the bullish kick is the breakout in IWM which came out of a Stein & Handle pattern.

Be that as it may, IWM remains well below its ATH from August 2018, creating a big divergence with the record high in the SPX.

Breakout or not, IWM looks like it is in the 5th wave up from the October 3 low.

Consequently, breakage back below the 160ish breakout point warrants caution.

The current breakout in IWM mirrors the breakout on August 21, 2018.

That push culminated on August 31 followed by breakage below the breakout point.

From there IWM collapsed nearly 30% into the end of the year.

Not all breakouts are created equal.

As long as IWM remains above 159-160 it is in a strong position but offsetting Monday’s large range breakout is a red flag.

The do-nothing Congress is consumed by impeachment. There is no trade deal — just Phase One lip service where the U.S. and China agree to disagree on everything important.

Tariffs are starting to hurt the bottom line as evidenced by retailer DLTR’s carnage this week.

Yet the market shrugs off every piece of bad news.

The market gets up and nothin’ gets it down.

Why?

It’s always about positioning.

Big money was playing defense based on the backdrop and when Octoberphobia failed to spook stocks, November played hit after hit from Mr. Market’s jukebox.

The bears have their back against the record machine.

I’ve seen these extremes before.

And 90% of the time when I try to rationalize the route higher, it proves to be a top of some kind.

Despite what I may think, I take the setups.

Let’s take a look at some of this weeks hits from our Hit & Run report.

Monday we took a 2.60 gain on ALLK from a Runaway 180 buy setup on Friday.

A Runaway 180 is a continuation signal in a strongly trending stock.

ALLK exploded in August and walked off that overbought condition into last week where it came out.

Friday set up the first continuation signal.

On Monday, we closed out a long from Friday in MRTX for a 5 point gainer.

Subscribers took MRTX long in the hole as it backtested its 50 day line coincident with a push into the open gap.

We locked in the gain as it approached its overhead 20 day moving average.

Also on Monday, members closed out biotech CRSP for a 5.60 gain.

We bought CRSP in the hole on Thursday on a Deep Momentum Pullback setup into a open gap.

On Tuesday, subscribers locked in a gain of 3.40 on half their AYX long taken from 106 on Monday. We are still riding the 2nd piece.

Likewise on Tuesday, we took ROKU long at 162.96 as it looked poised to come out of a 3 month Cup & Handle.

Members also took CDLX long on Tuesday as it started up out of its first flag formation since exploding out of a Cup & Handle on November 13.

Conclusion. The raging bull is at a delicate place: with players locked and loaded for a melt-up into January, I can’t help but wonder whether complacency will get a comeuppance when least expected.

Despite the many factors reeking of a potential reversal at any time, Gann’s words that “the most money is made at the end of cycles” guide our short term and swing trade operation.

The tension is on the tape; the trick of the trade is going to be to know when the bulls run out of dimes and the music stops and we are left with chirping canaries.

Pos AYX, ROKU, CDLX