“I never use valuation to TIME the market. I use liquidity considerations and TECHNICAL analysis for timing. Valuation only tells me how far the market can go once a catalyst enters the picture to change the market direction.” Stan Druckenmiller
Most of Wall Street would have you believe that the market can’t be timed so…just Buy and Hold…except the best and the brightest such as Druck.
You know the old saw: if you missed the best X days of the market you missed super performance.
Really? How come the turnover on mutual funds is so large then?
One thing I have to quibble with on Druck’s statement, however, is that the market always overshoots…on the upside and the downside. Consequently, the valuation measure is a rubber ruler.
What DOES tell how far the market can go is geometry. The Principle of Squares, as fleshed out with the Square of 9 Time & Price Calculator that integrates Time and Price, pictured below.
This is the difference between the Square of 9 and other technical tools and methods.
The Hit & Run Trading Methodology revolves around Time & Price and Patterns.
One of the most important swing patterns we’ve used successfully for 30 years (versus day trading patterns) is the 3 Day Chart and the 3 Week Chart.
Those two swing charts in conjunction and context, with the Time & Price squares carved out by markets and revealed by the Square of 9 Wheel- I have found are the most powerful way to determine the trend…be it the short-term trend, the intermediate term trend or the major or primary trend.
For example, on Wednesday, the SPX turned its 3 Day Chart up.
Why? Because it traced out 3 consecutive higher intraday highs (versus closing highs).
The last time the SPX 3 Day Chart turned up was on June 23…right off the June 17 low of the year.
The behavior, once the 3 Day Chart turns up, is the tale of the tape…at least on a short-term basis….and the short-term trend needs to turn before the secondary trend does. Likewise the secondary trend needs to turn before the major trend will show its cards.
As the following daily SPX shows, the index ramped after turning its 3 Day Chart up on June 23rd.
Then the index pulled back scoring 2 consecutive lower daily lows which turned the 3 Day Chart back down.
However, if the market wants to rally, as was the presumption by virtue of the price action after the immediate turn up off the low of the year, then the subsequent turn down of the 3 Day Chart on June 30 “should be” a bullish event.
In other words, the subsequent turn down of the 3 Day Chart should define a low in terms of time and price.
It did. The SPX made a low on the same day, June 30th.
Now, as you can see on Wednesday, the 3 Day Chart turned back up.
Notice that the SPX was rejected at its 20 day moving average on June 28.
As well, as stated in the Hit & Run morning report for June 28th, 3943 should be significant resistance first time up.
This was based on the Square of 9 and a measurement off the low.
The SPX struck a high of 3944 in first hour on June 28th and reversed with authority to close at 3821.
Yesterday, the SPX spiked above its 20 day moving average before pulling back to close on it.
There are two things we must be mindful of:
1) Rapid flipping of the 3 Day Chart often times defines a change in trend. We’ve had rapid flipping from up to down to up.
Volatility precedes price. The presumption is the bull may be ready to charge.
2) While the 20 day ma. proved to be resistance the first time up off the low, the second mouse may get the cheese if the SPX clears and closes above the 20 dma at 3843 in coming hours/days.
In sum, as flagged Tuesday morning, we’ve seen a conspicuous change in character in the former high-flying glamours.
ROKU, ETSY, CYBR, CRWD, MNDY…to mention a few.
If their recent momentum should extend while the oils and materials cobble together an oversold bounce (or something more “material”, the market could see a solid rally.