Market Rallies From Our Time & Price Projection

“A speculator is a man who observes the future and acts before it occurs.” – Bernard Baruch

I know several technicians who rely on Elliott Wave Theory exclusively.

They are debating whether we’ve already seen a 5th of a 5th wave down or whether we’ve only seen a 5th of a 3rd wave.

This is the problem I’ve always had with Elliott Wave; if you put 5 Elliott Wave adherents in a room, you’ll get 6 interpretations… and that’s before their alternate count.

As I see it, the trouble is that they don’t have a handle on TIME.

Monday was set to be an important day cyclically.

Last month, we flagged that from the September 3, 1929 top to the December 10, 1974 bear market bottom is 16,534 calendar days.

Another 16,534 days was March 17, 2020.

So this time frame is pivotal.

Last Monday, the SPX turned its Yearly Swing Chart down for the first time since January 2016.

It accomplished this by trading below the low for 2019. This was the January 3 low of 2443.96.

Last Tuesday, on March 17, the SPX made a return trip to the December 2018 landmark low of 2346.58.

This 100 point SPX window is going to be a big workout for the index.

A weekly SPX below shows the acceleration when the SPX snapped its 2019 low following through below the big December 2018 low.

Breakage below the aforesaid 100 point SPX window coincided with an extension below a 2 year trend channel.

I created this trend channel by connecting the 3 prominent highs of January 2018, September 2018 and July 2019.

I then paralleled a trendline off the December 2018 bottom.

Notice how the bottom of this trend channel coincides with the 2444 region, where the Yearly Swing Chart turned down.

But wait. There’s more.

I paralleled another trendline from the top of the green trend channel to the all-time high (magenta).

The bottom magenta line is equidistant from the bottom rail of the trend channel as is the distance from the top rail to the all-time high.

This lower magenta line ties to Monday’s lows.

The SPX didn’t quite get to our idealized 2140 handle, but overnight, the futes got pretty close.

Moreover, as noted last week, yesterday tied to the time of the first capitulation low in the 1929 crash while last Wednesday tied to the crash low in 1987.

That does NOT mean that the market must adhere to this time frame.

One reason being that this decline has set a record for the fastest downdraft of this nature.

It may take a little more time and backing and filling to install a low… possibly in the 2140 region.

Be that as it may, IF that plays out, there are going to be some solid divergences and higher lows in the Tennis Ball stocks that bounced in the last several days while the market was in a catharsis.

Yesterday, despite a drop in the averages, at least 10 leading glamours advanced 4% almost all on 50% + volume.

Additionally the NAZ saw a positive test of Wednesday’s low on less volume — this amid news of a rising infection rate of the virus.

Names include OKTA, AYX, SDGR, AXSM, SHOP, ROKU, APPN, NFLX and LITE.

As we offered last week, the market would likely bottom prior to the worst of the news.

Just as the SPX aborted its breakout (A) when it caved in back below the Breakout Line (B), the decline accelerated below the prior swing low (C)… the October 2019 low of 2856.

Likewise, now the SPX has to contend with the bottom of this big green two year trend channel around 2440 on any rally.

This is the precise region where the SPX was rejected last week on Thursday and Friday.

It’s decision time and the market has its work cut out for it.

My take is that if the market is rejected at this 2440 region again, it probably indicates that we have seen a 5th wave of a large 3 wave decline with a 5th of a 5th yet to play out.

Alternatively, reclaiming and sustaining above 2346, the Dec 2018 low, and then 2344 puts the SPX in a position to extend.

Conclusion. I wrote the above on Monday night when the futures were up around 40 points.

I’m finishing the report Tuesday morning. The futes are lock limit up and the indication so far is the SPX is going to open up right around the 2346 level of lore…the December 2018 low.

I never cease to be amazed by the Talented Mr. Market.

Remember, March 21 seasonal Gann point aligns with the 3394 ATH.

Below is a Square of 9 from 2 months ago showing this time/price square-out before the fact.

The red arrow is March 21
The purple arrow is 3394 (the all-time high)
The green arrow is 2140.

The SPX futures printed around 2180 on Sunday night into the March 21 time-window.

You can’t make this stuff up.

So a Selling Climax — at least for the near term — was due.

The NAZ tested last Wednesday’s lows and tailed up to leave a Lizard buy signal… a new 10 day low Bottoming Tail.

The SPX carved out an Up Down Up Sequence intraday, underpinning the idea that a rally was on the table.

A reversal was also telegraphed by what I call The Most Interesting Chart In the World.

Below is a monthly SPX from 2006 showing a 12 year trend channel.

I drew a trendline connecting the 2007 tops with the 2018 and 2019 tops.

From there, I paralleled a trendline from the big low in 2009.

Remarkably, a mid-channel line comes in at around 2030, a 50% retrace of the entire bull market.

This proves the geometry of the pattern.

Notice that just above this region is the bottom rail of a Megaphone formation that I dubbed The Meg two years ago.

In other words, two years ago, a Megaphone Top formation projected the possibility for a move toward 2000-2100.

But before Mr. Market dug in his heels, he pulled off the Mother of False Breakouts… a Pinocchio above the upper rail of a 13 year trendline.

To say that fast moves come from false moves would be an understatement in this instance.

This is the Power Of Pattern in the markets.

Use it to capitalize and anticipate where markets are going.

So the Meg struck… albeit it may have further to go — especially if the SPX has carved out the 5th wave of a 3rd wave. That implies the potential for a further drop after an intervening rally phase.

Corona jumped the shark.

The big picture bear case is that the SPX will snap the 2140-2030 region… ultimately.

The bullish alternative scenario is that the SPX has carved out a fractal of the Megaphone Formation that defined the bear market into the late 1974 low.

The market rallied out of that low, but it was another 8 years before the secular bull market began in earnest.

The Rule of Alternation… in the bullish case… is that this 2 year Megaphone MAY see a new bull market that will see a move north of 4,000 SPX take shape quickly.

Our work will identify such a move if it’s on the table.

Strategy: The market had a late swoon yesterday after we bought TQQQ. If we’d used a stop they would have got us.

This morning it is set to gap open 5 points.

There’s a time and a place for ‘triple’ leverage. I would not let it become a habit.

This morning, the market is set to stand on its tiptoes within the context of a downtrend.

We will follow our discipline and trim long positions into the strength in keeping with our trading philosophy to sell when an item tries to stand on its tiptoes in a strong downtrend, and vice versa, to buy when an item crouches within the context of a strong uptrend.

Pos TQQQ, SDGR, AXSM