My work has shown that September would be a turning point vis a vis cycles, and that was underscored by the 4545 SPX ATH square-out in early September. Remember that?
Most market participants probably believed it was too pat to see two years with back to back highs in early October; however, as you know, Gann wrote that anniversary dates are a big deal.
It may well be that the fall decline in 2020 simply served to set the hook for 2021.
Given that 92 years ago was 1929 and that 92 is square October 31/November 1, there is a strong likelihood the market could remain under selling pressure into that timeframe.
We wrote The Hunt For Red October, the Sequel in September and have been pounding the table that volatility would be king this fall.
To wit, every one to two day rally attempt has rolled over after sharp rallies.
That is in keeping with the conceptually correct nature of short-lived strong one to two day rallies being the sign of the bear in the eye of a hurricane.
As of yet I don’t see much sign of panic as the decline has been fairly orderly. However, with this second episode of Buy the Dip on the precipice of being a failure after two rally phases off the key 4280 region, panic may be in full bloom before the end of this week: the second mouse may get the cheese for the bears if this second rally attempt blows up in the face of the Buy the Dip crowd.
Monday’s failed rally may be the calling card for Mr. Panic:
1) A nice early rally in the SPX above the 20 day moving average was derailed, leaving an outside down day.
2) As well, as offered on the private Hit & Run Twitter feed Monday morning, the SPX could trigger a Jump the Creek sell signal below Phil D Gap from Thursday at 4365ish. The SPX closed at 4365 as the runoff was ugly.
3) In so doing, the SPX closed below its 50 hour moving average on Monday with little to write home about as support until 4505-4310.
4305-4310 looks like the bull’s last stand. Why?
There is a POSSIBLE inverse right shoulder there.
Breakage below 4300 triggers a Blade Runner continuation sell signal.
Blade Runner as in broken shoulder… as in inverse right shoulder.
Since fast moves often come from failed patterns, if the inverse H&S fails to act as support, it opens the door to our 4278 low
Forecast weeks ago and hit on the nose.
That’s not bragging. It’s not me. It’s the Square of 9 that called that shot.
Succinctly, 4278 is 360 degrees down from the 4545 ATH.
The point is that breakage below the well-defined 4278 level could very well see accelerated momentum to the downside.
In sum, there is a Cascade pattern to the downside staring us in the face.
1) The index closed below Phil D Gap at 4363.
2) Below the “right inverse” is another potential downside trigger.
3) Below 360 degrees down from high at 4278 opens the door to a waterfall decline to another 125 point SPX decline to an idealized target of 4149.
This would be in keeping with my count that the SPX likely completed an A B C corrective Wave 2 rally and Monday started a powerful Wave 3 decline.
If that is correct, the wheels will come off below the “double bottom” at 4280ish.
Finally turning to the SPX weeklies, the difference between last fall and now (for those of you thinking that an encore performance is being given), is that the 3 Week Chart turned down in late September, defining a low.
Currently, the 3 Week Chart turned down on the week of September 20. However, while that turndown perpetuated a rally, the index came back and rallies are being sold.
Indeed, per the aforesaid commentary, the SPX is threatening to a whoosh below 4280ish.
What is interesting is that checking the SPX monthlies shows that the index is in the first monthly Plus One/Minus Two buy setup.
That may yet install a low, but the month has a long way to go.
That low could be a panicky low.
Moreover, the last time the SPX carved out 2 consecutive monthly lower lows was in early March 2020.
That proved to be a buy, but only after a SEVEN hundred point crash.
Conclusion. The market found a high 18 months or 540 degrees in time from the March 2020 low.
We identified this as a potentially big deal in August as this is a major square-out in time.
As well, mid-August is where the DJIA struck its ATH.
Maybe something, maybe nothing, but 90 days/degrees from mid-August is mid-November where the 1929 crash initially bottomed.
On the Square of 9 Wheel, 400 SPY is 180 degrees straight across and opposite mid-November… that was the area of the last major swing lows in March.
Whatever happens with the ramp in volatility between here and year end only sets the stage for the major turning point we see in 2022.