Edifice Rex, Where Are We Now?

“Tryin’ to stop the waves behind your eyeballs

Drop your reds, drop your greens and blues.” – The Rolling Stones, Sweet Virginia

“Those who jump to conclusions may go wrong.” – Sophocles, Oedipus Rex

“Do I believe the Fed and its power that it has the resources? If I don’t, the danger is that we have everybody on the same plane and the pilot gets sick.

That’s a really dangerous spot to be.

The Fed has been very successful brow beating investors onto the plane, but there’s a danger to that.

You have everybody positioned in the same way as a result.” – Peter Atwater

Can confidence recede in a normal manner, or was the crash the first collapse in a house of cards? Or, was it a shakeout… albeit a doozy?

Is it 1987 or 1929?

Was the crash a one-off with a V shape recovery to follow, or did we just see the mother of dead cat bounces?

It’s in every body’s interest to believe in the confidence game, but nonetheless it’s a game.

And it depends on confidence.

Mr. Market has become an applause meter for administration and the Fed.

The problem is that markets move up or down now depending on the government and have nothing to do with valuation.

If the perception was that the market was a mechanism for price discovery had become frayed, now it is shredded.

In the last month, the market has been doing a good job shrugging off apocalyptic data points.

Supposedly, we are told, the market is smart. It is discounting a return to a rip-roaring new normal.

The market has not been smart since the powers that be have been messing with it.

It’s always been an emotional basket case, a bi-polar stroller, as Todd Harrison describes it, but now, courtesy the Federal Reserve and the PPT, it has become an emotional Medusa writhing with irrationality and mindlessness — the mindlessness of the passive, automatic, algorithms — the Algomatics.

More than ever, it’s critical to have a technical and cyclical rudder in the turbulent waters.

In keeping with the 90 year cycle that helped us to call the Crash of 2020, March 23 found a low right where we forecast — precisely in synch with the 1929 analogue (and 1987 analogue for that matter).

I remember as we went into the new year hearing one after the other Wall Street strategists on TV saying “we won’t see a market top for years.”

Many of these same folks are making bold statements now “that the bottom is in.”

I just wanted to make these comments because these people have the façade of credentials but are incredibly dangerous — particularly at very important times.

It is critical to have a methodology that determines the primary and secondary trend and keeps you on the right side of the market… the Line of Least Resistance, as the legendary Jesse Livermore called it.

It is also critical to have a sense of the history of market cycles because human nature drives the market and human nature runs in cycles.

For example, one of the factors in my warning that a top was due in January was the anniversary of the January 11, 1973 top.

That top was a false breakout that was followed by a devastating 2 year bear market. Our primary high in 2020 occurred on January 22, just 11 days after the anniversary of the 1973 top.

The SPX reversed 124 points from the January 22 high in 7 days to test its 50 day line.

This was a shot over the bow of the USS Bull.

The SPX recovered to make a nominal new false high.

When the 50 day average and the January low were snapped with a Breakaway Gap on February 24, the crash was on.

The fact that the bear market low in December 1974 was one half the 90 year cycle from 1929 — that was due, in my estimation, to exert its downside influence — was underpinned by the idea that a High to Low to High cycle was on the table, e.g., a high in 1929 with a low 45 years later and a high due another 45 years later.

The Great Crash of 2020 was not caused by a virus. It was precipitated by the virus.

The virus was the spark that lit the fuse that blew-up and exposed the underlying sickness of the US economy carrying an overvalued stock market on its back.

What sickness? Wasn’t it the best economy we’ve ever seen?

Only if you consider too much debt, too much malinvestment based on dishonest, engineered interest rates healthy.

It must be said that the news breaks with the cycles, not the other way around.

The stock market was vulnerable to contagion from the cycles.

Now the SPX is at a trifecta of resistance at another important anniversary date –April 17, 1930 was the high of the rally following the 1929 crash.

The market proceeded to roll over for 2 years and 3 months.

W.D. Gann stated, “To prove to yourself the value of these anniversary dates, all you have to do is to study and watch how the trend changes on any individual commodity around these periods. The most important to watch of these anniversary dates are the ones when a final TOP or final BOTTOM is made.”

It’s worth noting that the recent March 23 low ties to the March 24 final high of the SPX on the 20 year cycle in 2000.

So where are we now?

The SPX is at this trifecta of resistance coinciding with this important anniversary date on the 90 year cycle:

1) A first test of the SPX declining 50 DAY moving average at 2863.

2) A Measured Move: the 2nd leg up equals the 1st leg up off the March 22 low at 2892.

3) The rally into Friday’s high precisely tagged the level of the January 2018 top.

The January 2018 spike high was 2873. Friday’s high was 2879.

It is worth noting that the January 2018 peak was the highest weekly momentum reading in history. So it is a legitimate spot from which to measure price action. Is it possible that the SPX is carving out the right shoulder to a 2 year plus Head & Shoulders top formation?

There are some levels on the above chart that are worth watching:

1) 2443 is where the Yearly Swing Chart turned down. This occurred within days of the SPX perfecting the time analogue of the 1929 panic leg.

2) The SPX 3 Week Chart turned down at 2280.51, the exact day of the low. You can’t make this stuff up.

3) 2641.40 is where the SPX turned its 3 Week Chart up off the low.

Each of these regions will be important going forward if the SPX turns down.

In addition to the aforesaid, well-defined 2890ish resistance, there are other technical factors that point to risk at this region:

1) The SPX has rallied into an open WEEKLY gap from the week of March 9. Talk about anniversary dates — this was the low in 2009.

2) Friday’s high also ties to the level from October 2019 where the last ditch rally started.

3) Last but not least, as subscribers know, Friday represented a possible Time/Price square-out on the SPX.

This is because April 17 is 90 degrees square 2876 as shown in an image of the Square of 9 Wheel below.

Friday’s 2875 close may represent a perfected balancing out of time a price, a turning point.

Blue is 2875/2876
Purple is April 17

Conclusion. Friday was the first monthly option expiration after the crash. I can’t help but wonder that there were beaucoup puts ripe for the squeezing.

Obviously it’s just a coincidence that we got news a day before Friday’s opex of “some results” of a therapeutic for the virus.

So the SPX vaults from a 50% retrace at the 2800 region toward the 2900 strike on a hope and a prayer.

I don’t believe in coincidences when there’s billions of dollars in play.

You gotta ask yourself, if there are no bulls, who are the buyers?

Strategy. The key 2790-2800 region, which represents a 50% retrace of the decline, should act as support if the market is as bullish as it is trying to present. Otherwise, the move above 2800 like Friday’s move over the SPX 50 day moving average are Pinocchio’s.