Broken Records

On Wednesday, the SPX and the NAZ made all-time new highs but tailed off into the red.

A late rally on the run off salvaged new record highs on the SPX and NAZ.

Interestingly, the NDX failed to score a new high, being dragged down by the SOX which is knocking on the door of a Bull Trap if it follows through to the downside.

The semiconductors lead, so if they falter, it could point the way lower in the market –especially given that 5 micro waves to the downside can be counted in the SPX on Wednesday.

The bottom line is breakage below the January 10 Key Reversal Day low of 3260.86 would confirm Wednesday’s high as a potentially significant top.

As flagged on the Twitter feed this week, losing 3260 opens the door to the 3150 region — with the 50 day line currently residing at 3167.

The significance of a top would be further confirmed by sustained trade below the 20 day moving average at 3241.

An early warning signal would come from a break of a little iv wave low at 3277 and an unfolding larger 5 wave decline.

The Square of 9 seems to confirm these levels.

This is because 90 degrees down from Wednesday’s 3299 high is 3241, which ties to the 20 day moving average.

180 degrees down is 3186, which ties to the 50 day moving average (currently 3167 but rising).

270 degrees down is 3130.

A full cycle of 360 degrees down is 3074.

The last swing low was the December 3 low at 3071, which ties to the aforesaid 360 degrees down from Wednesday’s high — assuming it remains a high.

Said another way, at Wednesday’s high, the SPX satisfied a 360 degree rally.

Blue arrow is 3071 (Dec low)
Red arrow is 1 sq or 360 degrees up at 3297

The normal expectation would be for the market to respect this relationship with a reaction… a pullback, at the very least.

Of course, for whatever reason (and one assumes they have some that they are not talking about), the Fed has made sure this is not a normal market.

Now the Federal Reserve officials say they are considering lending cash directly to hedge funds through clearing houses to ease stress in the repo market.

Reefer, er Repo Madness… except this is OPM… other people’s money.

Isn’t this like the college admittance scandal where parents were paying proctors to correct the answers on their kids' SATs to get into universities?

In other words, if the hedge fund loses money, no problem, here’s some more.

Despite the SPX leaving 3 Topping Tails in the last 3 days for a Charlie’s Angels sell pattern (3 tails in close proximity), like a broken record, the market is right back up before the open, challenging Wednesday’s highs.

Like a broken record, I must repeat, until 3277 is broken (followed by breakage below 3260), the line of least resistance points higher.

Like a broken record, I must repeat, that the market reveals its intentions like a Rubik’s Cube.

Everything may appear lined up, but one bar, one click, can change the picture.

As offered in yesterday’s report, if the market doesn’t turn down through 3277 and clears this 3295 region (360 degrees up from the 3070 Dec 3 low), it points the way to a cluster of objectives between 3330-3340.

Whether the market tops right here or extends into the weekend, next week holds the potential for panicky selling.

Investor sentiment is at an unequivocal extreme equivalent to that of January two years ago.

For example, the 21 day CBOE Equity put/call ratio has declined to .52, its lowest in six years.

As the market ratchets higher day by day, professional traders tighten their protective stops accordingly.

Consequently, when The Stop is hit, when a little prior swing low is violated on a sustained basis, I do not think it will lead to a garden variety, orderly pullback.

I think the likelihood is we will get an air pocket down to 3150.

Investor frenzy implies that any top struck this month will be large.

The question is how lasting it will be.

As long as a potential downdraft holds the key 3100-3125 level, the bull market remains intact and that MAY be a buying opportunity… if, of course, the reaction I expect plays out.

AAPL is the lead dog and is barking.

It is more extended from its 200 day moving average than ever.

Its last major swing low was June 3 at 170.

The major swing low from January 2019 was 142.

AAPL may have a date with destiny this week at the 320 strike.

Why? Because 320 is 3 cycles of 360 degrees, 3 full squares, up from 142.

Green arrow is 142
Red arrow is 3 squares of 360 degrees up at 320

A daily AAPL shows it left bearish Train Tracks on Wednesday at the top of a 7 month trend channel.

5 waves up from the Dec 3 low can be counted now, but AAPL may put a cherry on top.

It shows a 6 week Rising Wedge with a potential Gann turn on the 7th week next week.

The Principle of Squares proves the math at this 317.50-320 region.

360 degrees down from current levels ties to 250 and the bottom of the trend channel.

Sustained breakage below 300-299, which is 90 degrees down from here, opens the door to lower prices.

Chart Reading

Yesterday was a good day for subscribers.

We have been positioned long in SHAK and SHAK January 62 calls since late December.

The set up was based on SHAK carving out 3 Drives To A Low and basing.

The presumption was tax selling in SHAK into the end of the year would create an upside vacuum at some point in January.

On the last week of the year, SHAK left a narrow range week.

These contractions in range are oftentimes quickly followed by expansions in range.

On Tuesday, SHAK left a combo buy signal — a Rule of 4 Breakout (a breakout over a 3 point trendline) and an Expansion Pivot buy signal—a move over the 50 day line w the largest range in 10 days.

Range precedes price: the narrow range week at the end of December and the Tuesday’s large range outside up day (LDOD) or Lightning Rod led to SHAK’s explosion on Wednesday.

The stars were aligned for Pin Action.

As we tweeted on Tuesday on the Hit & Run private Twitter feed: “If SHAK clears the 65 strike, it may be magnetized to the 70 strike into Friday’s opex.”

It didn’t take until Friday.

UI was a short swing idea that members took last week based on a negatively positioned Volatility Contraction setup.

UI was skating BELOW its DECLINING 20 day moving average.

On Tuesday, it left a continuation 180/Holy Grail sell signal.

A Holy Grail sell is a back test of the overhead declining 20 day m.a.

After skating below its 20 day for over a month, the ice broke on Wednesday.

In both cases, the emotional quotient paid dividends: good price comes to patience.