“No reason to get excited
The thief he kindly spoke
There are many here among us
Who feel that life is but a joke.” – All Along the Watchtower, Bob Dylan
“A fire broke out backstage in a theatre. The clown came out to warn the public; they thought it was a joke and applauded. He repeated it; the acclaim was even greater. I think that’s just how the world will come to an end: to general applause from wits who believe it’s a joke.” – Soren Kierkegaard
“The real manipulation is not of gold but of confidence. The investment demand for physical gold is inversely correlated to confidence. Every confidence game tried has ended with a loss of confidence and so will this one.” – Simon Mikhailovich
We are in the midst of overload — pandemic news overload and wild market gyration overload.
The overload has caused a huge change in global mood, one which is likely to prove bigger than the virus.
Even an effective treatment would not reassemble shattered illusions.
The illusion that governments are prepared for ‘unforeseen’ inevitabilities.
That said, the speed and extent of the April rebound in stock averages reflects a potent cocktail of unprecedented central bank largesse and a resurgence of complacency.
Buy the Dip has metastasized into Buy the Crash.
As is typical of Wall Street’s idea of history to extrapolate the most recent episode of the bear, it has apparently harkened back to the V Bottom following the crash into December 2018 as the template going forward.
Central banks know that the stock market is considered the best leading indicator for the economy.
Sentiment is revealed in action more quickly in the stock market that within the economy.
My thesis is that the Fed is obviously aware of this and by ‘jiggering’ the stock market and the media they hope to effectuate trickle down positive sentiment in the economy.
Be that as it may, irregardless of The Hand, the market has a remarkable ability to adhere to an innate structure reflected in time & price harmonics.
For example, the SPX bottomed precisely on our March 23 forecast in keeping with the analogue of the 1929 crash.
W.D. Gann wrote that when Time & Price are square, expect a change in trend.
In league with that analogue from 1929, there was a time/price square out on March 23 underpinning the idea of a low.
Although not exact, it was close enough for government work.
You see, March 23 is 90 degrees square 2185. The actual low was 2191.
That is a time and price SQUARE-OUT with price 90 degrees square March 23.
March 23 low (green) is square 2185 (purple)… 6 points from the 2191 low
My primary expectation after the March low was that the SPX would rally with a logical objective to around a 50% retrace of the decline. This is 2792.66.
Following a pullback in early April from 2637, well shy of a 50% retrace, a new high for the rebound played out which exceeded the 2792 50% retrace. This provided a new Measured Move objective of the first leg up.
The first leg up was 445.15 points. Adding 445.15 to the April 1 pullback low of 2447.49 gives a Measured Move objective of 2893.04.
The SPX rebound high so far (on April 17) was 2879.82, just shy of the idealized 2893.04 target region. This satisfies the possibility of an A B C corrective Wave 2 rally.
April 17, of course, is an important anniversary date as well — it was the rebound high after the 1929 crash.
Given that this year's crash occurred in the window of the 90 Year Cycle and the crash of 1929, this is a region worth watching.
The presumption following this Measured Move up into a potentially important anniversary date was that the market had an opportunity to pullback.
Consequently, late Monday, April 20, I suggested to subscribers to go long the VXX 50 strike calls for April 24 expiration.
They more than tripled from our cost basis of 50 cents following the gap down on the next day and we took the Gift Horse Gains.
The following day, the market made it clear that it was not done rallying.
Instead of following through to the downside on Wednesday, April 22, the SPX turned up and continued higher last Thursday, filling the open gap from Tuesday’s drop. Gap fill was the perfect spot for something to hit the market and it did. The market was derailed by ‘news’ that Gilead Sciences' virus drug was either bogus or ineffective. I’m sure it was just a coincidence… just like it was a coincidence that ‘good news’ regarding Gilead’s remdesivir drug sent the market rocketing on Friday, April 17 — a “bulls eye” for monthly option expiration.
Keep in mind that day was the high for the rebound so far.
So who exactly WERE the sellers that day?
Although the market was vulnerable based on Thursday’s reversal from the SPX 50 day line, the bears were unable to capitalize on the rollover. Another late day rally on Friday saw the bears snatch defeat from the jaws of the bull, leaving a Friday weekly close above the 50 day moving average.
Of course this is the second close by the SPX over its 50 day line this month.
The Friday before last the SPX also struck a weekly close above its 50 day line.
So we have two consecutive Friday weekly closes above the 50 day m.a.
It will be interesting to see if the 2nd mouse gets the cheese for the bulls or the bears with a possible test failure of April 17 high playing out early this week.
The SPX is in a battle zone. It hasn’t made up its mind which way it wants to go as it remains trapped in a trifecta of technicals:
1) the 50% retrace at the 2792 region
2) the Measured Move at the 2893 region
3) the index has been in a tug of war at its 50 day moving average currently at 2808. Today will be the 7th day of the skirmish.
For several reasons I think there is a strong likelihood we will get a resolution of this war at the 50 day moving average this week.
First, we have equality in time. In other words, the decline from the February 19 all-time high was 23 trading days. The rally off the March 23 low has been 23 trading days.
Markets seek equilibrium. So while an approximate Measured Move in price was attained on April 17, TIME was not up.
As legendary trader W.D. Gann stated, “Trend changes when time is up.”
So the market has been backing and filling after price has hit an important region.
Now we will see if this symmetry in time provides a turning point
Underscoring the potential for a turning point is that this 23 trading day period squares out with the 3394 SPX all-time high.
As a square of 9 below shows, 23 is 90 degrees square 3394
Green is 3394
Purple is 23
In Friday’s report, I flagged the micro triangle the SPX has been working on.
Another late day move saw the SPX clear the top of the triangle.
However, another whipsaw to the downside back below the pattern will trigger a Triangle Pendulum sell signal.
While breakage back below 2800 again only represents a short term sell signal, it is notable that this smaller triangle is within the context of a larger 6 day triangle.
The SPX is pushing above this larger triangle this morning on a trajectory toward this month’s 2880 swing highs.
If a turning point is on the table, the first sign will be a failure back through Friday’s high followed by a reversal down through 2805.
This is because 2805 currently defines the bottom rail of the larger triangle on the dailies.
Notice this 2805 region also shows up on the above 10 minute SPX.
Conclusion. The market is at a time and price cluster here.
In addition to the time of the rebound equaling the time of the crash, Friday’s highs represent an important price pivot:
Friday’s 2843 intraday high is square the March 23 2191 crash low.
Friday’s 2836 close is square March 23, the date of the low.
This cluster is within the context of a Measured Move being tested.
Now that ‘time is up’ or equal, we will get to take Mr. Market’s temperature.
If the rally has further to run, today’s behavior will reflect it.
Alternatively, a roll over from this juncture warrants caution as it may prove to be the beginning of a new leg down.
The bulls and bears are waging a war at the 50% retrace and a Measured Move. It ‘feels’ as if the bulls are well in control of the market. At least that’s the mantra the vast majority of the talking heads are chanting now.
This is the goal of a rebound following the initial leg down off a major top — to reestablish in part the bullish sentiment that existed at the prior top.
In an echo of early January, the chasing in ‘Home Alone Stocks’ like W, ZM (until Friday’s reversal) ETSY and a slew of biotechs exemplifies the new FOMO (Fear Of Missing Out) — exactly what one would expect to see at the top of a rebound.
“Two riders were approaching and the wind began to howl.” – Bob Dylan
99.999% of traders have never even seen the Square of 9... let alone understand its potential.
Do you dare to be different?
99.999% of traders have never even seen the Square of 9... let alone understand its potential.
Do you dare to be different?