“Excess in one direction will lead to an opposite excess in the other direction.” – Bob Farrell
In another see-saw session, Thursday’s decline in the SPX to a new low for the move at 3858 approached a Head & Shoulders projection to around 3800.
I am using an approximate Neckline of 4300 given the messy structure on this year's decline.
I’ll focus on the above weekly later. For now, I want to show how Thursday’s reversal played out and why we recommended a buy of TNA (3X IWM long) in the last hour on Thursday to play a reversal as the RUT/IWM had shown relative strength throughout Thursday.
A 10 min SPX for Thursday/Friday shows how the index broke to a new low late Thursday, but triggered a little Jackknife buy signal on the sustained stab back up through the morning low.
From my perch, this indicated Option Expiration Pinball to 400 SPY could be on the table.
It was… and then some.
The SPX backtested key resistance at 4020 on Friday’s Gap & Go Opex gamma squeeze extravaganza.
4020 has been our primary initial projection since the 4818 ATH. This is because 4020 is 1080 degrees down from 4818… or two full “cubes” of 540 degrees each.
So the question whether this region will stop the index dead in its tracks or we get an overthrow… just as we had a throw-over below 4020.
Meaningful hourly resistance comes in at 4070.
I’ve stressed how this is an important week.
Let’s take a look.
We are 7 years from the MAY 2008 pre-crash high.
7 years before that was the important high in August 2015.
WD Gann said 7 was the fatal number, the number of time.
Why?
There are 365 days in a one year cycle.
52 weeks X 7 years is 364 weeks.
Wheels within wheels.
As well, Tuesday is the anniversary of the NYSE start, The Buttonwood Agreement.
Interestingly, the Gann Panic Zone counting from the interim or secondary March 29 high ties to this week.
In sum, despite more than a few high fliers dropping 70 to 80%, and what many pundits “say” about fear permeating the markets…
We have NOT seen genuine fear and panic consistent with other meaningful market lows.
This is probably because the Fed Put and Fed largesse backstopped a 12 year Buy the Dip Paradigm.
How do you upend that “hope” and create panic with a capital “P?”
One way would be a failure of Friday’s spike.
The above weekly SPX shows two parallel channels.
I connected the important August/September 2018 peak to the January 2022 ATH.
I then paralleled a trendline from the Dec 2018 crash low.
Notice that this trendline acted as support in January 2022.
Next I created another trend channel from the March 2020 crash low.
Notice that this ties to the 3500 region through the 1st half of this year.
There are a few points to be made about this chart.
1) First of all, 3500 ish ties to a 50% retrace from the March 2020 low to the January 2022 peak.
2) The Yearly Swing Chart low is at 3662.71. The Yearlies will turn down on trade below that level.
Given the angle of attack from the highs and the overbalance in TIME of this decline, there is a strong likelihood the Yearly Swing Chart will turn down this year…
Trade below 3662 indicates a flush to the 50A% retrace region in the 3500 neighborhood.
3) I drew a horizontal magenta line which ties to 3200.
3200 ties to the first rally high of the March 2020 low. It also ties to the consolidation lows in the fall of 2020 and the Breakaway Gap down in February 2020.
4) A declining purple trend channel underpins the 3800 region… the H&S target. The message is breakage below this purple trend channel opens the door to 3500-3600.
5) At the same time, note the acceleration following the break of a triangle (green is bottom of triangle).
The indication may be that a powerful 3rd of a 3rd of a 3rd wave decline may be on deck as presented in the daily SPX below.
While the market followed through on Friday from Thursday’s reversal, it has not been able to follow through on a bullish setup since the March 29 recovery high. This leaves the proposition of another failure on the table.
The last time we had a similar spike in the market was May 2-4 when the index ran 245 points from 4062 to 4307 spiking into Powell’s presser.
The next day, the SPX started to waterfall and didn’t stop until Thursday’s 3858 low –a 449 point slide in 6 days.
Friday was a Gann Day 7.
A similar slide from Friday’s spike would see the SPX in the 3500-3600 zone over the next week.
This would be consistent with the idea of a powerful 3rd of a 3rd of a 3rd wave decline.
Alternatively, upside follow through above 4070 could theoretically open the door to a backtest of 4300.
Conclusion. This week is a very big inflection point time-wise in the markets based on Gann’s Master Time Factor.
As noted, there has been no true panic. The decline has been orderly all along… staving off “pure panic.”
IF we are going to see such panic in the intermediate term of this bear leg, then this week is a prime candidate.
Given that the biggest financial bubble in U.S. history has popped, the odds of this leg ending without a crescendo seem short.
That the SPX demolished a trifecta of support at 4020, 4000 and 3980 suggests another killer wave will follow when this rally rolls over.
