The Italian Job

By Jeffrey Cooper  JUL 02, 2012 10:25 AM

July is setting up as a pivotal month for the market.



Sometimes I wanna get in a car, close my eyes and drive real fast
Keep on going ‘til I get some place where I can truly rest

-Rivers Cuomo ("Longtime Sunshine")

Between saying and doing, many a pair of shoes is worn out.
-Italian proverb

Waves are not measured in feet and inches, they are measured in increments of fear.
-Buzzy Trent

In last Monday’s report, I walked through the significance of June 27, 2012.

Specifically, from 9/11/2001 to 11/21/2008 is 2628 days.

Half that period, or 1314 days, taken from 11/21/2009, gives June 27, 2012.

The first two dates from September 2001 and November 2008 are obviously two of the most important dates of the last 12 years.

In the markets, 9/11/2001 led to a three-day crash and an immediate 1,000-point move in the Dow Jones Industrial Average (^DJI) off the low predicted in my report at that time.

11/21/2009 was the crash low around the world.

Last Tuesday’s report noted the following:

June 27 squares 1314 on the Square of 9 Chart and that 1314 also approximated one-half of June’s range as well... the T-Rex in the ointment is that although a very powerful move may be in the offing, the direction is as opaque as a Greenspan speech. There was an edge in the pattern for yesterday’s (Monday’s) gap down following a Pause Day. Now looks like the time to be more discreet than bold until we see the whites of their eyes. And, it may be that the whites of Mr. Market’s bloodshot eyes comes on an outsized gap, up or down that catches many off sides.

On Wednesday, June 28, the S&P 500 (^GSPC) plunged 20 points to a low of 1313.29 before a late rally brought the index back to near unchanged, closing at 1329. Remarkably, the plunge to 1313 and change ties precisely to the to the aforementioned period of 1314 days, the period from 11/21/2009 to June 27, 2012.

Folks, you can’t make this stuff up.

Is there a one point per day angle from 2008 that ‘squared out’ last week, marking a significant turning point? Perhaps it will lead to a nominal new high in the S&P to just above this April’s 1422 peak. Be that as it may, it is clear that last week's lows and 1313 are significant support.

A break of last week’s lows should issue a Get Out Of Dodge sell signal.

Last Monday, the S&P shed just over 20 points, closing on session lows. In Tuesday's report, we noted that Monday (June 25), was the 55th day from the May 1 pivot high, which as Gann students know often marks a selling climax.

I went on to say that “without downside follow-through and a big momentum day like Monday below 1306 and then the 200 dma, this may be a low area for a rally try and that since this week is also a ‘secret cycle’ tying 9/11/2001 to 11/21/2008 together, it is also possible that a more significant low is playing out.”

The turn was fast and furious. In fact, an outsized Gap & Go occurred on Friday. The DJIA exploded 430 points intraday, in the last seven hours of the quarter no less. From Angela Merkel’s ‘not as long as I’m alive’ statement to her ‘blinking.’

My what big eyelashes you have Angie; they sent the shorts reeling.

Just days before the EU Summit, Berlin rejected demands from Spain and Italy.

Was this orchestration the state against the free market? The issuers of debt against the debt holders? Was the fix in? Was this a three-card Monti or was an offer made that couldn’t be refused?

Despite the fact that the Gann Panic Window closed with Monday’s bell, I suspect the cycle from 2001-2008 could exert downside pressure on the market. I’d be lying if I said I wasn’t leaning lightly short going into Friday. I suspect both bull and bears were caught flat-footed for the most part.

Judging by the action in the dollar and silver, which made a new low for the week, currency and metals players were also caught flat-footed Friday morning. If ‘feels’ like there were beaucoup under-invested bulls going into quarter-end along with outright bears, and that a grenade was tossed into the ‘barn.’

“Why didn’t it feel like the best June performance in 13 years?" asked the fruit to the Cuisinart.

Another day or so like Friday and the DJIA will have mirrored the 1000 point rally off the 9/11/2001 low.

That of course puts the market right in the crosshairs of another possible turning point. July 2 is 90 degrees in time from the S&P high of the year. The first week of July is also a “Master Square.”

Why? Because the first week of July ties to 1576, which was the all time S&P high.

July is also the five-year anniversary of the July 19, 2007 primary bull market high. July 1 is also the anniversary of the major higher low in 2010 at S&P 1010.

The first week of July is also the third anniversary of the first pullback low following the run up from the March 2009 low.

From the July 2011 pivot high to the low during the first week of October 2011 low was 90 degrees in time. From the October 4, 2011 low to first week of January 2012, upside acceleration was 90 degrees. And from the early January 2012 acceleration to the April 2, 2012 top was 90 degrees.

So, this week sets up as a major turning point as it is 360 degrees from the July 2011 pivot high, 270 from the October 2011 low, 180 from the January 2012 thrust, and 90 degrees from the April 2, 2012 top.

At the same time, the monthlies are set to turn up on continuation above Friday’s highs since Friday’s highs were near the high of the month.

It will be important to observe the behavior at this turning point in time, coincident with a turn up in the Monthly Swing Chart. Since the market is running up into this time frame, it looks like a high, but the price behavior will be what counts.

The current pattern may be mirroring the price action from the May 2008 pre-crash pivot high, with a one month offset.

The S&P carved out what looked like an Inverse Head & Shoulders bottom in early summer 2008 and rallied to Pinocchio its 50 dma several times before rolling over in earnest, coincident with the failure of the perceived Inverse Right Shoulder.

The idea of an Inverse Head & Shoulders also took hold in December 2008, also giving rise to a Pinocchio of its 50 dma.

But, the market doesn’t exist to accommodate. The market isn’t that ‘pat’ as a sharp decline undercut the November 2008 low. Note how that decline was also a 90 degree knife-down from early January into March 2009.

Was Friday’s explosive move the beginning of a new leg up? Was it a Breakout or a Fakeout?

There is a lot of stock being put in the idea of a current Head & Shoulders bottom  which potentially projects to around 141 SPY (1410 S&P). But, this projection ties closely to a possible bearish A B C measured move to 139.97.

Clearly, the SPY broke out above two declining trendlines, one from the April 2 high and one from the May 1 pivot high. While the breakout occurred on the important weekly closing basis and also exceeded the last swing high, a large A B C could be playing out. It is also important to remember that oftentimes the largest rallies occur within the midst of severe bear markets. This can be seen throughout the persistent decline from May 2008 to March 2009.

That said, continuation above the April lows in the S&P/SPY (1357/136 respectively) and an extension above the prior year’s high of 1370 implies higher prices. In other words, recapturing where the last sell signal occurred on a break of last year's 1370 high puts the market in a stronger position, at least for a while, after which a case could then be made for a rally that could extend into early August. Why?

The 1932 Depression rally lasted until 1937. There was a first top in March and a decline until June and a final rally attempt into August. From there, the bear market continued into 1942 (or 1949 by some measures).

In addition, early August will be 360 months (the 30 year cycle), or one full revolution from the beginning of the Great Bull Market on August 12, 1982.

So, this next month will be very important with many key anniversaries occurring. While there is some celebration that a sovereign crisis has been averted in the EU, it may be a matter of buying time. Is it possible the 6 squared month  rally from March 2009 to  March 2012 mirrors the Depression rally into March 1937?

Just because now you have a way to get then (the banks) to borrow even more money, this is not solving the problem, this is making the problem worse. People need to stop spending money they don’t have. The solution to too much debt is not more debt. All this little agreement does is give them (banks) a chance to have even more debt for a while longer.
--Jim Rogers


So Helicopter Angie delivers the Howitzer to the ECB. Will her constituents whine ‘Why Ma?’ As in Weimar? 

It is possible that we are witnessing the Return of the Reflation trade?

Gold (GLD) is coiled.

The Can of Whoop Ass is kicked down the road again, desperately seeking solutions from the past. Fear takes a holiday but we can’t escape the hollowness that the landscape feels too foreign to chart.

Our self discoveries make us each a microcosm of the larger pattern of history. The inertia of introspection leads toward recollection, for only through memory is the past recaptured and understood. In the act of experiencing and making the present we are all actors.
--Terence McKenna (True Hallucinations)

Twitter: @JeffCooperLive

No positions in stocks mentioned.

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