“Millions saw the apple fall, Newton was the only one who asked why.” – Bernard Baruch
It took the worst quarter in history to discredit two of the best know Wall Street ‘axioms’:
In March, it paid to Fight the Fed.
This time IS different.
Several factors aligned for a reversal on Tuesday:
1) The SPX turned its 3 Day Chart up last Thursday, March 26.
2) It fully tested its overhead 20 day moving average yesterday for a Holy Grail sell signal.
From my perspective as a trader, the 20 day m.a. is more important than even the 50 day moving average. There are roughly 20 days in a month and the 20 day smooths out a month’s price action
So it is a good gauge.
3) For the first time since the collapse began, the SPX Weekly Swing Chart turned up on Tuesday.
These are the spokes in the Wheels of Time which we used to determine the trend and The Path Of Least Resistance.
Let’s walk through them one by one.
1) The 3 Day Chart does a superb job of defining the trend. It turns down with 3 consecutive lower daily lows (intraday, not closing). It turns up with 3 consecutive higher daily highs.
Notice that the SPX 3 Day Chart turned down directly off the all-time high on February 24. It did so convincingly on a Breakaway Gap below its 50 day line. The fact that the index gapped below its 50 day line just 3 days off an all-time high was a blaring siren that ‘it was different this time’ — that the 90 year cycle we’ve been stalking was set to exert its influence.
It must be said that when the market is in an uptrend and the 3 Day Chart turns down and the market does not find a low soon, in terms of both time and price the indication is a change of trend. The market accelerated to the downside after the 3 Day Chart turned down on February 24 and the Crash of 2020 was on.
2) On Tuesday, the SPX fully backtested its 20 day moving average for the first time since the crash started.
It took a 449 point, 20.4% rally for the index to kiss its 20 day moving average. It was stretched on the upside as it was on the downside a week ago.
3) When the trend is strongly down, a turn up of the Weekly Swing Chart will define a high soon in terms of time and price if the underlying prevailing trend is still down. Sometimes you will get two higher weekly highs against the underlying trend; however, when the trend is strongly down as it has been, the red caution flag is waving the first time the weeklies turn up. That happened yesterday. On Tuesday, the SPX traded above the prior weeks high by just 4.30 SPX points and reversed.
On the above daily SPX, notice that every instance the market turned its dailies up by 1 to 2 days, it reversed immediately. This is characteristic of waterfall declines.
Additionally, today marks day 7 off the low. As you know, turning points often play out 7 hours, days, weeks or months. Seven is the number of time.
Likewise, the SPX carved out an NR 7 Volatility Contraction Day on Tuesday. Tuesday was the narrowest range in 7 days.
These contractions are usually (not always) followed by an expansion in volatility within a few days.
In fact, the last day of March was the narrowest range of the month.
In like a lion, out like a lamb.
These things have to be anticipated.
One of my dad’s great influences was legendary trader Bernard Baruch who said, “Successful speculation is about anticipating the anticipators.”
For the above reasons, we anticipated a turndown, and late Tuesday I recommended buying TZA (a leveraged short bet on the RUT/IWM).
The table was set.
If a new leg down mirrors the first leg down of 538 points, it projects to 2103. Interestingly, this ties closely to our idealized 2140 projection.
To recap, 2140 represents a full 6 revolutions of 360 degrees down from the 3394 all-time high.
This is a very important measure of the market:
It defined the advance from the 2002 bear market low to the 2007 top.
It defined the crash from the May 2008 pivot high to the March 2009 bear low.
That does NOT guarantee the SPX will hit 2140 here and now.
But there is a strong likelihood given the angle of attack to the downside that it will do so ultimately.
In addition to the above factors pointing to a reversal to the downside yesterday, we flagged a time/price square-out which underscored the idea of a drop.
Specifically, on the Square of 9 Wheel, 2623 is straight across and opposite March 30/31.
Time and price were balanced out.
Red is March 30/31
Blue is 2623 (180 degrees opposition)
Additionally, 2582 represents two full revs of 360 degrees up in price from the 2192 low.
2582 was resistance. However, the SPX had a date with destiny: it had an agenda to turn its Weekly Swing Chart up. As soon as it did so on Tuesday, it started rolling over.
My takeaway yesterday was that a drop back below the aforesaid key 2582 region would trigger a sell.
The SPX closed at 2584.
If you waited for a break of 2584 to sell longs and initiate shorts, the train left the station without you.
This IS a game of anticipation.
An hourly SPX below shows the significance of the 2623 square-out region.
Today we are getting a big 80 point gap down below the key 2582 level.
The table was set.
360 degrees up from the 2192 low ties to 2383.
Red is 2192
Green is 2582 (2 squares up)
A 50% retrace of the rebound is 2416.
This is a window to watch.
Conclusion. That the current economy resembles a depression mirrors the 90 Year Cycle. Unemployment is set to soar to Great Depression levels of 25%.
Economic and monetary stimulus will likely be $10 trillion with national debt growing to $30 trillion.
The dollar should weaken as U.S. debt goes ballistic.
This should be a fuse for gold and precious metal miners.
Pos FNV, GLD, GLD calls, GDXJ, GOLD, WPM, AG, SSRM