There Are Reasons To Think Rally Continues: How To Determine the Trend

“Whenever you find yourself on the side of the majority, it is time to pause and reflect.” – Mark Twain

$SQQQ 3x inverse $QQQ ETF – posts record weekly inflow of +$918M – 2nd largest weekly inflow was 11/5/20 +$290M cc @zerohedge

To succeed in speculation, we must make decisions based on incomplete information.

This is called risk. No risk, no gain.

The key is to take calculated risk.

My idea of calculated risk is not to place faith in fundamental ideas about a company or the economy. Valuation metrics are the past, the market trades on the future.

I rely on the patterns of a stock and the market as a whole and unique time cycles to determine the trend — be it the short term trend, the intermediate term trend or the major primary trend. The time frame of your position will depend upon the nature of the trend.

When multiple time frames align from the hourly to the daily to the weekly, the odds are in your favor.

Let’s take a look at one way I determine the trend.

The 3 Day Chart turns down with 3 consecutive lower intraday daily lows (opposite is true for turn ups in the 3 Day Chart).

Let’s take a look at the SPX from its March 29 recovery high.

The index turned its 3 Day Chart down right off that March 29 pivot high.

 

It is the behavior after the 3 Day Chart (and especially the 3 Week Chart) that must be observed.

It is the “behavior” that is key.

Speculation is observation, pure and experiential. Thinking isn’t necessary and often just gets us into trouble.

Downside follow through after a turn down in the 3 period chart opens the door to lower prices.

However, as is often the case, there is a “knee-jerk” reaction after either the 3 Day (or 3 Week Chart) turns down.

Following a turn down in the 3 Day Chart, a rally attempt played out that failed in short order on April 5.

This led to breakage of the 20 day moving average.

Just like a turn in the 3 period swing chart, when an important moving average is broken, often the market backtests that moving average before trending in the direction of the underlying trend… in this case, down.

On April 21, the SPX backtested its overhead 20 day moving average and rolled over, immediately carving out a large range outside day reversal.

A waterfall decline ensued.

Keep in mind the 3 Day Chart remained pointing down throughout the waterfall.

On May 12, the SPX gapped down to a new 60 day low closing near the top of the day’s range.

This is my Gilligan Island buy setup. It’s like an Island Bottom but the gap doesn’t really exist. It’s “Hollywood.”

From the May 12 low, the SPX turned its 3 Day Chart as the next 3 days traced out higher daily highs.

Interestingly, on May 12, the index satisfied 3 drives to a declining trend line.

When the main trend is pointing down, a turn up in the 3 period chart will often define a high soon in terms of time and price.

Remember above I stated that there is often a knee-jerk reaction on these turns.

The SPX turned its 3 Day Chart up on May 17. It defined a pivot high with the SPX dropping to a new low on the year on May 20.

That drop turned the 3 Day Chart back down on May 20.

However, May 20 had been a date on our radar for a while.

Why?

The leading QQQ scored its ATH on November 22 (notice that was a Key Reversal Day).

Markets oftentimes play out in geometric divisions of the circle or cycle (+ or -).

These are 90,180,270 and 360 days/degrees.

90 days/degrees from the Nov 22 ATH is February 22. The NDX (and SPX) saw a large range reversal on February 24.

While that low was undercut one month later, it was the start of a process perpetuating the counter-trend rally into the March 29 peak.

180 days/degrees from Nov 22 is May 22. The SPX made a new low for the year and reversed with authority on May 22.

Note that the waterfall decline that started in early April was 90 days/degrees from the SPX January 4 ATH.

The SPX 3 Day Chart turned back up on May 27.

Rapid flipping of the 3 Day Chart often marks a change in the interim trend.

So far, the market has been in a consolidation since May 27.

It is to be determined whether it is tracing out a little Bull Flag or a Bear Flag.

That said, the 3 day rally May 25, 26, and 27 scored a rare 3 consecutive 80% up days: superior breadth and volume.

That and the 3rd Drive to a Low at a declining trend line could underpin a continued rebound.

As well, on May 26, the SPX reclaimed a key level at 4020.

Subscribers to the Hit & Run Report have been aware of this level targeted since January when we stressed “the market will get hit in January to start a strong decline.”

4020 is an important 1080 degrees down (540 X 2) from the 4818 ATH.

On May 26, the SPX also recaptured its 20 day moving average.

Is it possible that a mirror image foldback of the SPX’s knife through the 20 day moving average in early April is on the table?

In sum, this week will be very important. Despite Friday’s downdraft, it was an NR 7 Day.

In other words, the SPX left the narrowest range bar in 7 days.

These contractions in volatility are usually followed by an expansion in volatility in a few days.

The market is at a short term inflection point with some evidence to support a continuation of the rebound.

However, fast moves come from false moves, and if the promise of an extension higher is thwarted with breakage below 4020 region in coming days, panic selling could play out.

Stocks move on what people think. People think in perceptions and preconceived notions that stimulate them to place buy and sell orders.

People are emotional beings that sometimes act crazy.

It doesn’t pay to argue with a crazy market.

As Mark Twain said, “Never argue with a fool or a crazy person, onlookers may not be able to tell the difference.”

They say trying to time the stock market is a fool’s errand, but like so many clichés, it is an empty cliché.

Timing in the stock market is everything because time is money.

“They” also say never try to pick tops and bottoms, but Paul Tudor Jones states, “I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.”

My methods may seem unconventional, but following Wall Street “wisdom” produces conventional returns.

My methods called the March 2000 Bubble Top within a day of the peak. On August 31, 2000, we wrote, “the most speculative area of the market, the NAZ, is as vulnerable as the DJIA on September 3, 1929. My methods called the 2002 bear market low within days of the low, the 2007 October high with an article, “It’s A Dead Man’s Party,” the March 6, 2009 bear market bottom to the day.

They pointed to a crash in the 1st quarter of 2020 and my Square of 9 Time & Price Calculator identified the day of the low on March 23, where I stated a run to 4000 was likely.

Let’s take a look at one example of my methods using the Square of 9 Time & Price Calculator — the best trading tool on the planet.

October 24, 1929 was the first of two crashes, the second being October 29 that year.

That was 93 years ago.

On the Sq of 9 image below, notice that October 24 is 180 degrees straight across and opposite April 21, when a waterfall decline started in 2022.

Notice also the T-Square that ties October 24, 1929 with April 21, 2022, some 93 years later.

Purple, 93
Red, Oct 24
Blue, April 21

Price movement is not random. This is the essence of WD Gann’s coded novel, The Tunnel Thru The Air… the code of which is unlocked by the Square of 9 Wheel.

So the question is, did the 703 point 22 trading day decline this year from April 21 represent enough of a selling panic to open the door for at least something more than a 1 to 3 week rally?

Wall Street Logic: Everyone thinks everyone else is bearish so “everyone” goes bullish, which makes the maximum pain bearish.

The maximum pain may be on deck on the next turn down.