January Saw A Crash, But It Is Likely Not THE Crash


“The ancient hunters had a rule that when they were searching to locate an animal in his den, they always followed his tracks backward, figuring that it was the shortest route to his lair. The quickest way for you to learn how to determine future market movements is to study the past.” – WD Gann, Forecasting By Time Cycles

A wild week ended with the first green weekly close since the decline from the SPX January 4 ATH started.

It was a week of whiplash, intraday and day over day, appropriately enough ending an incredible month of volatility.

It was one of the worst starts to a year on record — if not the worst.

However, our valued members were prepared for January’s treacherous tape.

In early December, we warned that “the market will get hit hard in January and that intense volatility would erupt.”

In sum, Friday’s large range outside up reversal day was a change in character:

1) After striking a new low close for the decline on Thursday, the SPX followed through to the downside on Friday but rallied sharply, triggering an Opening Range Breakout.

2) Then, after a nearly 90 point reversal off the low, the index pulled back, leaving it only up 6 points on the session.

3) However, that backtest of the Opening Range Breakout triggered an explosive runoff of 100 points from 4332 to 4432.

An hourly SPX shows the bullish Triangle Pendulum that signaled the last hour Option Expiration Pinball from the 430 SPY region to the 440 SPY region on Friday.

Below we drill down to a 10 min 2 day view of the price action.

The reversal was not unexpected.

Tuesday morning’s Hit & Run report showed the SPX had struck the bottom of a 14 month trend channel on Monday.

The SPX reversed with authority on Monday.

While ideally we could get a rally into our mid-Feb idealized turning point, the velocity and angle of attack to the downside of this structure is stunning and there is nothing in particular of panic to point to such as a pandemic as in 2020.

The current powerful downdraft is natural selling resulting from a major cluster of cycles exerting their influence, which could pull stocks down in a crash.

However, apparently there is so much money being hedged for a crash at the moment that it may take the semblance of stabilization and a rally to thwart a crash over coming days.

That said, decisive breakage below last Monday’s low at the 4222 region at any time may signal that crash is on, hedging or not.

In sum, is it time to jump back in or is this the mid-point of a decline?

My feeling is the Fed Put and Buy the Dip are not the tip of the spear anymore.

In sum, you should never allow your expectations of something to distract you from seeing the real thing just because your expectations were different — especially now as we may be dealing with a major degree cycle.

Leave a Comment: