“Sailors fighting in the dance hall
Oh man, look at those cavemen go
It’s the freakiest show.” – Life On Mars, Bowie by Aurora
Last week saw the buying stampede in the growth glamours we traffic in continue prompting a gap to another new all-time high in the NAZ on Tuesday.
However, the euphoria started to fade on a surge in Covid cases and the index gapped down on Wednesday, closing near session lows, underpinning the fragility of the new high.
Taken together, Tuesday looks like an Exhaustion Gap, one criteria for a climax following a persistent runup.
This is underscored by the first close in the NAZ below its 20 day moving average since the March low on Friday.
Significantly, I think, the close below the 20 day m.a. is on the important Friday weekly closing basis.
I can’t help but wonder whether a wave 2 in Covid ties to a powerful Wave 3 decline in the market.
The following weekly NAZ shows this potential structure depicting a Wave 1 down from February into March with a Wave 2 rally into June.
It may seem illogical that a Wave 2 could carry to a new all-time high, but it is in keeping with the presumed B Wave corrective rally into the February all-time high prior to a vicious C wave.
As I have said many times in this space, breakouts can be the most dangerous point in a market – if they reverse back through prior swing highs in short order.
This was the case at the new high in August 2018.
It was the case following the new high in February 2020, which in one week saw the NAZ knife below its prior all-time high from July 2019.
It remains to be seen if that is the case currently with the NAZ reversing back below the February high on Friday.
Be that as it may, the daily NAZ left a Soup Nazi sell signal on Thursday.
A Soup Nazi sell occurs when an item makes a new 20 day high but reverses the same day or the following day back below that high with the caveat that there is an intervening 4 day separation between the 2 highs within the 20 day lookback window.
This is to guard against continuation moves.
Succinctly, the NAZ struck a high on June 10 and pulled back.
It made a new high on Tuesday, at least 4 days later but within the 20 day window, and knifed back below the June 10 high on Wednesday.
The Soup Nazi together with Tuesday’s Island Top occurring 90 days/degrees from low is argument enough to respect a drop in the market, but in addition we have a Time/Price square-out.
Allow me to explain.
The NAZ low on March 23 was 6631.
Moving the decimal point to work with the Square of 9 Time & Price Calculator we get 663.
The Square of 9 below shows that 663 aligns with/vibrates off June 23 for a Time/Price square-out.
Red is June 23
Green is 663 (for 6631 March 23 low)
In other words, the price of the low points to the date of the high.
As W.D. Gann wrote, when time and price are square, expect a change in trend.
In addition, the weekly NAZ shows a Buying Climax.
This is a new 52 week high with a down week.
Notably, last week was the second week out of the last 3 that scored a Buying Climax.
Moreover, bearishly, both Buying Climax weeks were large range weeks with closes near the low of the week.
Notice that the March low saw a Selling Climax.
The NAZ struck a new 52 week low and an up week.
As W.D. Gann also wrote, as above, so below.
Interestingly, the high in February was also a Buying Climax.
The index opened with a Breakaway Gap the next week and the Crash of 2020 was on.
It will be interesting to see if the market opens with a gap down today mirroring the pattern in February.
As well, Friday saw the NAZ stab below its prior swing high from February.
The February high was 9838.
Friday’s close was 9757.
It did the same thing on the week of June 8 as well but recovered immediately.
But we have to be on the lookout for downside follow through as this may be a case where the second mouse get the cheese for the bears.
The SPX has completed a potentially bearish A B C corrective rally structure. The bullish alternative to a Wave 3 decline to new lows below the March low is that the anticipated decline we expected below the December 2018 low was a C Wave into the March low and that the NAZ has begun a new bull market.
The tale of the tape will be told on the complexion of the next pullback.
We will be watching the behavior of the Weekly Swing Charts and the 3 Day Charts that reveal the Line of Least Resistance as to the intermediate and primary trend and will of course, as always, update in our morning reports and intraday on the Hit & Run private Twitter feed.
Likewise, we will be stalking the AAPL of the Bulls-Eye.
As the biggest cap stock out there and the most beloved stock on the planet, owned in more ETF’s than any other stock, arguably AAPL is the Mother of All Tells.
The week before last we flagged a Time/Price square-out in AAPL at 371.
Green is March 23, the low
Red is 371
Time points to price, price points to time.
Is there a difference between the two?
Is there life on Mars?
On Tuesday, AAPL gapped up, striking a high of 172 and tailed off closing near session lows at 366.
In so doing, AAPL left a Lizard sell signal.
A Lizard is a new 10 day high that sees a stock run up but tail off to close near the open and the bottom of the session.
Lizards oftentimes mark at least short term exhaustion after a persistent runup.
Notice that at the March 23 low, AAPL left a Lizard buy signal.
AAPL’s pullback resulted in a turn down of its 3 Day Chart.
This occurs when a stock makes 3 consecutive lower daily lows.
Friday was the 4th time since the March low that AAPL turned its 3 Day Chart down.
The first occurred on April 21.
The second on May 15.
The third on June 15.
And the 4th on Friday, June 26.
Notice that each time AAPL turned its 3 Day Chart down since the March low it defined a low the same day.
I don’t say markets play out in three’s without a reason.
Monday is going to be an interesting day.
Summary. The market found another turning point near our June 21 turn date, 90 days/degrees up from the March low.
Going into quarter end markets, we have a case of an unstoppable force meeting an unmovable object.
We are faced with the biggest economic contraction since the 1930’s aggravated, unlike the 1930’s, by record debt to GDP levels… like most of the globe. This is the unmovable object.
At the same time, we have the unstoppable force of a Federal Reserve with its ability to use an infinite balance sheet to print money and buy assets that has promised to do whatever it takes for as long as it takes.
And the question is, what does the Fed do for an encore?
Is there life on Mars?
“But here friend is nowhere to be seen
Now she walks through her sunken dream
To the seat with the clearest view
And she’s hooked to the silver screen.”
Conclusion. The NAZ struck a new high on Tuesday which was not confirmed by the SPX.
In other words, the NAZ made a new high for the move (and an all-time high) on Tuesday while the SPX made a lower high on Tuesday below its June 8 high.
This divergence between the NAZ & SPX is in the context of a larger divergence:
The NAZ struck an all-time high last week while the SPX remains well below its February all-time high.
Divergences such as this usually don’t end well.
They are typically not healed without a bear market.
It must be said that divergences can last several months before a final top and the onset of a bear market.
This was the case on the 20 year cycle, something we’ll go into more detail in a report later this week.
The following SPX shows the severity of the divergence with the NAZ which struck all-time new highs last week.
The daily SPX is on the verge of a first test of its 50 day line since the March low.
It came relatively close on two occasions, May 15 and June 15.
You can’t help but wonder if The Hand did a stick save before the index got too close.
The SPX closed 29 points from its 50 day moving average on Friday.
The first time the market does something in a long time, such as test its 50 day moving average, it often perpetuates a bounce.
That may occur here, but breakage below the 50 day that is sustained opens the door to the 2700 region