“Losing a position is aggravating, whereas losing your nerve is devastating.” – Ed Seykota
Following the downdraft into September 24, the NAZ and SPX ran up toward their September 2 record highs.
Several leading growth glamours used the rally to score new highs.
Names include FSLY, FVRR, CRWD, TWLO, OKTA and ZM… to mention a few.
However, this week has seen a sharp pullback in leadership that may indicate a secondary top is in place for a larger correction.
For example, the solar sector has been the tip of the momentum spear exemplified by JKS.
Yesterday JKS short-circuited, dropping from 90 to 68.
More than any other stock, ZM has been the poster child for the market’s advance since March.
ZM exploded from 102 on March 17 — ahead of the market.
Almost exactly 7 months later, on October 19, ZM struck an all-time high of 589.
Legendary trader and market seer W.D. Gann wrote that 7 is the fatal number.
There was no area of the esoteric arts and sciences that W.D. Gann was not familiar with.
I once spoke to the son of a private student of W.D. Gann’s who relayed to me something that Gann told his father.
To paraphrase, Gann said, the human body has 5 points or “stars” around its torso… 2 arms, 2 legs and a head that is 360 degrees.
The head is composed of 7 orifices: 2 eyes, 2 ears and 2 nostrils with the mouth being the 7th when everything goes down.
7, the fatal number.
Did you ever wonder why October is infamous for diabolical downturns?
October is the 7th month from the Spring Equinox, March 21, that Gann considered the natural beginning of the year.
So there’s that — the fall is a “natural” time for a fall.
The following daily ZM from June shows a massive Earnings Gap on massive volume on September 1, one day before the market topped.
The SPX and NAZ reversals on September 3 perpetuated a pullback in ZM toward Gapfil.
In so doing, ZM turned its 3 Day Chart down.
The first turndown in the 3 Day Chart following major momentum such as ZM saw after reporting presented a superior entry.
As such, despite the NAZ and SPX continuing to pull back into late September, ZM ripped to a new high in late September.
Following a pullback toward its 20 day moving average, ZM accelerated once again, running up 100 points in 5 days into Monday where it left multiple sell signals, a Gilligan and Lizard.
A Gilligan is a gap up to a new 60 day high with a close at/near session lows.
A Lizard is a new 10 day high Topping Tail. In other words, ZM ran up but tailed off to close near the open and the bottom of the day’s range.
Not all sell signals are created equal.
In addition to combo sell signals on Monday, ZM tagged the top of a 7 week trend channel, carving out a potential pattern of 3 Drives to a High.
We sent the following tweet to members of the Hit & Run private Twitter feed before Tuesday’s open as well as the following Square of 9 image showing the 90 degree decrements down from high if ZM.
You can see that ZM is zooming in on an important juncture — 360 degrees down from its high is 497, which ties to its 20 day moving average and a mid-channel line.
So ZM is flirting with a full-fledged test of its rising 20 day moving average for the first time since early August for a Holy Grail buy setup.
The normal expectation is that this should be a good signal; however, we must be mindful that ZM shows 3 Drives To A High at the top of a trend channel.
Sustained breakage below 487 opens the door to Moving Average Pinball to the lower rail of the channel around 425 and the 50 day moving average.
As well, Wednesday’s indiscriminate selling saw several leaders, such as ETSY (which was a Hit & Run short setup from Tuesday night’s stock report), knife right through the 20 day moving average.
Yesterday marked urgent selling by institutions. This is the second time since early September we’ve seen urgent selling in growth leadership.
As I like to say, the first mouse gets the squeeze, the second mouse gets the cheese.
This second episode of urgent selling warrants caution.
The following daily SPX from June shows the SPX carved out a Climax Run on September 2, 90 days/degrees after an early June low.
6 of the last 7 days have seen the index close at/near session lows.
The SPX looks like it is hanging by a thread above a Bowtie of its 20 & 50 day moving averages.
At the same time, it is sitting on a short term rising trendline.
In sum, there is a potential bullish structure to the SPX: an inverse Head & Shoulders with the inverse Head being the September 24 low.
Additionally, one could argue that the index is working on a Cup & Handle with the recent pullback being a bullish Handle.
The takeaway is that if the SPX squanders the potentially bullish implications of the bullish patterns, a sharp drop is on the table.
Fast declines come from failed bullish patterns.
The pivot is the 3400. Breakage of 3400 could see Airpocketism to 3300.
Trade below 3300 triggers a Rule of 4 Breakdown — a break of a 3 point trendline (green).
Interestingly, a Measured Move of the September drop points to the low 3100’s.
I have Time & Price harmonics that indicate cycles could exert their downside influence over the next month that line up with 3125.
