"I said time, time, time is on my side...
Yes it is."
-Time Is On My Side (The Rolling Stones)

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Let's step back from the noise and neon in Tape Town. Let's get a bird's eye view of the Pivotal Set-Up I referred to weeks ago. Ideally, cycles were projected to peak and unfold by the end of July.

The DJIA low in October 2002 was 7178. A double of that low gives 14,356. The intra-day or theoretical high for the move so far has been 14,121, scored on July 19th, approximately 1 and 1/2% from a double of the low of five years ago.

There is an old market adage that the market "puts some time on the side" after a low or a high before trending in earnest. After scoring a low in October 2002, the S&P began to advance in earnest on March 12, 2003 from 789 S&P. A double of that start point equates to 1578, which ties in remarkably well, as you will recall, with the possible projection I have mentioned to 1576.

To recap, 1576 is an important six squares of 360 degrees up from the October 2002 S&P bear market low of 768.

The important thing to remember is that time is more important than price when it comes to turning points. When time is up, it doesn't matter where price is.

Speaking of time on the side, the S&P scored a high at 1540.55 on June 1, seven weeks ago, or nearly two months on the side. Eight trading days ago the S&P eclipsed that June 1 high but since then has gone nowhere fast.

The bulls point to a breakout over a formidable base backstopped by substantial short selling to fuel higher prices. But where is the follow through?

Be that as it may, if there are a lot of shorts, the other side of the coin is the hedgers being record long the S&P futures, as Professor Bennet has pointed out.

Last Friday, the S&P dove back below the level of the June 1 1540 high, closing at 1534.10 on the important weekly close, no less. On Monday, the S&P staged what looks to me like a snap back rally with a potential leg down to come to test the bull/bear pivot, 1520/1521.

Monday was a ragged, mixed session that felt like distribution. Even with the S&P at its high for the day up 13 points, my screen was bleeding. Unless you were in Crocs (CROX) or Trina Solar (TSL), there was little upside momentum in the usual suspects.

However, downside momentum was conspicuous in the likes of Terra Nitrogen (TNH), Baidu.com (BIDU), Google (GOOG), and Cameco (CCJ) to mention a few.

Underneath the surface of the stealth strength in the popular indices someone, it seems, is selling. Could someone be buying futures to mask the liquidation of stocks?

Are we seeing distribution?

The Russell 2000 has traced out what may be an ominous distribution pattern: the index scored an all time intra-day and closing high on Friday, July 13. However, in so doing it has traced out a potential 1-2-3 Swing to a Test Sell Set-Up, a test of the June 1 high.


Click here to enlarge.

This is a bearish pattern. In fact, it is a fractal of the 1-2-3 Weekly Swing to a Test that existed on the S&P at the end of August 2000 as that index tested its high of five months earlier.


Click here to enlarge.

Moreover, a look at a weekly chart of the Russell 2000 shows it scored an outside up week on the week ending July 13, 2007. The expectation would be for immediate followthrough if the market were bullish. Instead of following through, the index immediately turned its weekly chart back down. In doing so, it left a Sling Shot Sell Signal.

Finally, a look at a chart of the Tell of Tells, Goldman Sachs (GS), shows the stock is in a nearly identical position to where it was at its March low.


Click here to enlarge.

In March, GS carved out a bullish Plus One, Minus Two Buy Set-Up on its monthly chart. In other words, the three month chart was up, followed by two consecutive lower lows. Currently the monthly chart shows the same set-up (B) except for one big difference: GS now shows two closes below its 200 day moving average.

The same pattern exists presently, except for one important distinction. GS has closed convincingly below its key 200dma for two consecutive days. In the March pullback, GS remained substantially above its 200 dma.

Is it real or Memorex? Is it time on the side, indicating distribution in the S&P and Russell 2000?

Does GS represent a buying opportunity or will this general lead the troops lower?

I have never seen a sustainable rally without the financials participating. Therefore, weakness in the financials, my cycle work, and the lack of followthrough from the July 12 'breakout' suggest a defensive posture until proven otherwise.


Click here to enlarge.