“Well it’s been building up inside of me
For oh I don’t know how long.” – The Beach Boys, Don’t Worry Baby
“What the wise man does in the beginning, the fool does in the end.” – Howard Marks
“Divergences are like laxatives. You never know if one is enough or two is too many.” – Justin Mamis
“The S&P 500 closed out July with a 5.5% gain for the month. The bellwether index has now rallied for four straight months, making its largest four-month percentage gain since December 1998.” – Wall Street Journal
The market crashed in March in keeping with our expectations that the 90 year cycle was due to exert its influence.
On March 23, we told subscribers there was a strong likelihood the market was making a bottom.
In no way was I clever enough to imagine the kind the 100% plus moves seen in many stocks.
The question is whether this is the post 1987 rebound or the post 1929 rebound?
Was the March crash a one-off, a doozy of a shakeout in an ongoing bull market, la 1987 or the mother of dead cat bounces a la the aftermath of the 1929 debacle?
My work suggests August may hold the answer.
Interestingly, August ties to the pre-crash high in both 1987 and 1929.
Despite the fraying of great expectations of a V-shaped economic recovery, the leading NAZ closed at an all-time weekly high last week—largely on the heels of the A-Team, AAPL and AMZN.
The SPX’s recovery has not been complete, but the NAZ is 10% above its prior February peak while the economy is not coming back quickly at all.
It was an incredible week — the economy shrunk at a 32.9% annual rate in the 2nd quarter while the NAZ closed at a new weekly all-time high.
That said, the momentum has waned in the NAZ as well.
While it struck a new weekly closing high, it still has not bettered its signal bar reversal highs from July 13 and July 31.
The NAZ is within striking distance of a new all-time daily high on follow through from Friday’s high-tick close.
However, in rallying back to the region of its prior July highs, the NAZ has carved out what may be a Diamond Top.
Another reversal here would be the 3rd such rejection from the same 10,800 region.
The above daily NAZ shows the July 13 large range Gilligan’s Island (a Key Reversal Day as well) and the July 21 Gilligan’s Island.
A Gilligan’s Island is a strategy I created in the 1990s in my Hit & Run Trading books.
It is a gap up to a new 60 day high with a close at/near session lows.
It does a good job of identifying exhaustion — at least in the short term.
However, it takes more than a few jabs in the back of the bull to bring him down.
As George Soros states, “The usual bull market successfully weathers a number of tests until it is considered invulnerable, whereupon it is ripe for a bust.”
A 3rd Topping Tail reversal here would leave a possible Charlie’s Angels sell setup.
This is 3 tails in close proximity. It is a Test of Test failure pattern.
In other words, July 31 was a test failure of the July 13 Key Reversal Day.
Another reversal from here would be a Test of Test failure pattern.
A 3rd reversal may be third time's a charm for the bears.
It looks like we’re at an interesting juncture as August kicks off with the NAZ challenging July’s record highs and the SPX challenging its 3280 July recovery high.
Maybe something, maybe nothing but this week squares out with the 3281 region as depicted below on the Square of 9.
Red is 3281 (831 in the purple 3000 grid)
Green is August 8
Interestingly, a Fibonacci 13 years ago saw an important pivot high on August 8, 2007 followed by a roughly 8% drop in 6 trading days.
On the Square of 9 Wheel, the number 13 conjuncts August 8.
Blue is 13
Green is August 8
In my experience, when there are a cluster of time/price harmonics such as this, the odds for a turning point are enhanced.
Above, I noted that I flagged the March 23 low.
One of the factors in doing so was the time/price square-out depicted below and shown in this space in March prior to the low.
It shows that the all-time 3393 SPX high aligns with March 23.
In other words, the price high squares out or points to the date of the low.
Time points to price; price points to time.
Red is 3393 (393 in the purple 3000 grid)
Blue is March 23
So I think it will be important to gauge how the market behaves this week.
Again, the question on the table as we round the corner into the dog days of summer is whether it’s the post-1929 or post-1987 aftermath.
The apple of the bull's eye may hold a clue.
In mid-July, AAPL left a Gilligan signal reversal bar from 400.
At that time we stated that 90 degrees down was 381 with breakage below 381 targeting 360 (180 degrees down).
AAPL bottomed near 360 on July 24 on the first test TOWARD its 50 day moving average in months.
As well, as depicted in the following chart, AAPL also kissed the bottom rail of a 4 month trend channel.
It was a picture perfect long setup.
Even if one did not want to assume the risk associated with holding through Friday’s earnings, the following 10 min chart reveals how a Late Day Breakout above Friday’s Opening Range delivered 13 points in an hour and a half.
Who was going to stand in front of the AAPL locomotive going into the bell on a Friday in the summer?
The question is whether AAPL’s 100% advance in 4 months is a Buying Climax… at least in the short-run.
Let’s take a look.
The square of 9 below shows how 3 cycles or revs of 360 degrees up from AAPL’s March 212 low is 423.
Interestingly, both 212 and 423 align with today, August 3.
As well, 423 and 212 square the prior 400 peak.
Red is 212
Blue is 423
Purple is August 3
Green is 400 region
Conclusion. With AAPL doubling and the NAZ rising to a record high following the March crash, Mr. Market has been successful persuading everyone who could be persuaded to be bullish of stocks.
Of course, there are always going to be some dyed-in-the-wool skeptics who demur at buying AAPL at 385 up from 11 in 2009 prior to Friday’s earnings.
But such is honor of being the bridesmaid at the wedding of TINA & FOMO.
I said it last month and I’ll say so again. I can find no other excuse for the market to have staged one of the fastest if not the fastest rebounds in history other than that Smart Money got blind-sided by the fastest 30% dive in history in March and forcibly drove the market back up to get a more graceful exit.
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?