“Hello cowgirl in the sand
Is this place at your command?
….Hello ruby in the dust
Has your band begun to rust” – Neil Young, Cowgirl In the Sand
“There is a tide in the affairs of men,
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries,
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.” – William Shakespeare, Julius Caesar
“Do not use the words “Bullish” or “Bearish.” These words fix a firm market-direction in the mind for an extended period of time. Instead, use “Upward Trend” and “Downward Trend” when asked the direction you think the market is headed. Simply say: “The line of least resistance is either upward or downward at this time.” – Jesse Livermore
Today, major financial news outlets called the market decline a “bear market” because the major U.S. indexes are down 20% or more.
A decline of 20% is purely an arbitrary percentage to label a bear market.
The 4th quarter decline in 2018 was approximately 20% as well.
Because that satisfied Wall Street’s arbitrary criteria for bear market was that a good time to sell?
No. In fact, it marked the precise bottom of the Christmas Crash.
That is not to say that is my expectation here — for a bottom.
Indeed, despite the market’s stunning velocity to the downside — losing 20% in just 17 days — the fastest clip in history, the percentage of bears remains low.
Investor’s Intelligence shows the percentage of bears at a low 22%.
This is what you get with a decade of Buy The Dip and Don’t Fight The Fed perpetuated by the Fed Put.
Investors have bought into the hologram of perpetually higher prices driven by what friend and fellow trader, Ken Rostron, calls the Automated Sedated Passive ETF Trade.
So, while The Street waits to define a bear market by a 20% decline, we don’t wait for an arbitrary percentage drop to warn subscribers that risk is rising.
Truth be told, the onset of a bear market is defined by the time, price & pattern.
As I’ve warned since last fall, cycles were due to exert their downside influence in a big way. Markets play out in natural cyclic divisions of a circle (cycle) of 360 degrees.
For example, the Crash of 1929 was precisely 60 degrees in years from 1869 where a crash occurred that started The Long Depression lasting a decade.
60 years from 1929 was 1989 which saw the top and crash of the Japanese market which was followed by a bear market in 1990 in the U.S.
90 years from late 1929 is late 2019 and 150 years from 1869.
Let’s take a closer look at these two cycles and their relevance in time.
60 years is 720 MONTHS or 2 cycles of 360 in months.
150 years is 1800 months, which ties to an opposition of 180 degrees.
That the inflection of these two cycles is exerting its downside influence is powerfully validated by the quickest, most severe drop off an all-time high in history.
In terms of pattern, we warned in December that a false breakout spike to new all-time highs in the SPX could mirror the false breakout in January 1973.
Importantly, the false breakout in 1973 was followed by the worst downturn economically since the Great Depression and a 2 year bear market into December 1974.
In other words, 45 years (half the 90 Year Cycle) after the 1929 peak saw the bear market low in 1974.
Taking that same duration in days GIVES THE FIRST QUARTER OF 2020.
Of course the first quarter of 2020 is the anniversary of 20 Year Cycle which marked the Bubble Top in 2000.
The stars were lining up.
The underlying pattern going into 2020 was setting up.
Let’s take a look.
Below is a daily SPX from October 2019.
Note that the index fell out of an Ending Diagonal from the January 22, 2020 top.
Often markets fall sharply and steeply out of Ending Diagonals or Rising Wedges.
The break off the January high saw the SPX tag the bottom of its multi-month trend channel.
I created this trend channel by connecting the highs off the blow-out move off last October’s low and paralleling a trendline off the October low.
The bounce off the bottom rail of this trend channel on January 31 tied to the first test of the 50 day moving average since the blow-off that started in October.
The first time the market does something in a long time usually leads to a move in the direction of the underlying prevailing trend.
The market rebounded to a new high in February.
My expectation at the time in this space was that January marked a Primary Top and that a knife back below the January high would be a red flag with a break below the trend channel a blaring siren.
One factor of concern expressed to subscribers and on the blog was that the 90-100 day/degree blow-off into January 2020 mirrored the blow-offs in 1929 and 1987.
These 90-100 day blow-offs were the signature of pre-crash peaks.
February 24 was a day of destiny in the markets: the SPX left a Breakaway Gap below its blow-off channel.
It hasn’t looked back.
Alarmingly, as long time readers are well aware, the pattern of the drop has been a stunning echo of the crash in 1929.
Where does that put us in that pattern?
The great crash in 1929 started after a one day turn up in the dailies.
In the current picture, that ties to Wednesday.
That means today and the next 3 days are key.
Especially the Ides of March… the 15, which is a Sunday.
Monday sets up as a critical day.
Wednesday, the SPX carved out a large range outside up day from the key 2730 level.
Thursday, the index knifed back through Wednesday’s upside reversal.
In other words, we got a bearish Reversal of a Reversal pattern.
False moves (such as Wednesday’s large bounce) often lead to fast moves, and that is playing out in spades this morning.
Early this week, we projected a move to 2730ish. Below 2730 projects to 2526 in my work.
This ties to the high of the low bar week from the 2018 Christmas Crash.
Below that, a complete retracement to the December 2018 low at 2346 is on the table.
Below that, a targets a 50% retrace of the entire bull market to 2030ish.
Interestingly, this ties to where the Trump Advance started in late 2016.
Parabolic arcs oftentimes retrace to their point of origin. So never say never.
Last week, we noted that the structure of IWM was crystal clear. We called IWM The Truth Teller and that it argued for a move to 120, the bottom of a weekly trend channel.
Here’s a look at that chart again:
An updated daily IWM through Wednesday’s action shows it has plummeted through its December 2018 low.
This morning it is opening around 120.
It will be interesting to see if The Truth Teller points to a bounce.
If not, the wheels could come off.