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Price Is the Final Arbiter

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There are only a few words that really matter in markets.

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As someone who writes about the market every day, there is a natural temptation to imbue the short term action with more meaning than it deserves.

To ascribe 'signal' to what is mere noise.

To confuse symbolism with substance.

It takes time for things to play out, in life as in the markets. Without time, everything would happen at once.

While our job is to interpret the accumulation and distribution patterns bred  by the marriage of time and price, there is often a temptation to read too much into the short term gyrations versus the trend---especially when a market is in extreme oversold territory as it is now.

The bottom line as I must always remind myself and subscribers is the four most important words in this game: Follow Through Is Key.

Markets reached extreme oversold levels  last Wednesday, Thursday and Friday and gave the appearance of wanting to stage a retracement rally, to breathe.

Additionally, as offered in yesterday's report, 1858 is 90 degrees square January 20th. The SPX reversed from 1857.83 to close at 1880 on Friday. At the same time we flagged that 1865 is 1 ½ revs (540 degrees) down from the all time high. Yesterday's opening uptrust looked like a rally phase was on the table in reaction to these time/price harmonics.

Yet the markets gave up the ghost again.

After popping up over 20 points to 1901 on the open, the SPX began to bleed. Although it closed up 1 point, stocks looked sick.

What is one to use to navigate such volatile markets in turmoil?

The proof is in the pudding. As noted yesterday morning, 1901 is 90 degrees up from Friday's low.

Just as 1953 is 360 degrees down from the all time 2134 SPX high, it's not coincidence that the SPX failed after backtesting 1950 and the 195 SPY strike on Wednesday. You can't make this stuff up.

Oversold conditions have produced at least short-term buy signals on several technical and sentiment measures.

The bear isn't having any of it.

Some say the market is stupid. It doesn't know anything. I disagree. It is said that emotions drive human behavior 10 times more than rational  behavior and the market is the crucible of those emotions.

When the Street becomes concerned and confused because things don't make sense, technicals are front and center.

On Friday, the SPX did two important techincal things. Firstly, it turned its Yearly Swing Chart down for the first time since 2008. In fact, the yearlies turned down in January 2008.

The failure of the SPX to have a reaction rally when the big yearly wheel of time turns down looks conspicuously bearish.

Yesterday's report compared the pattern from December/January 2008 and 2016.

Interestingly, there was a big shakeout in AUGUST 2007 (just like August 2015) preceding a nominal new high in the fall.

Last year, the Rule of Alternation played out with the SPX tracing out a LOWER high in the fall.

Secondly, the SPX snapped a trendline connecting the August/September lows.

Yesterday's uptrust looked liked a little bear trap had been set on the break of that trendline in league with the above mentioned square-outs.

The bear isn't listening. Price is the final arbiter.

The promise of a little W bottom on the hourlies is being thwarted with authority this morning.


In so doing, the SPX looks the full fury of liquidation is on the table and the projection of 720 degrees down from high at 1780 is in the crosshairs.

As fellow trader Jon Stephens succinctly put it last night, "When a market gets oversold and stays that way, it is speaking loudly. Oil comes to mind. And now equities are exhibiting, at least in the here and now, and short-term a similar pattern."

Markets typically don't crash off the top. And this one didn't, having spent one year 'on the side.'

However, in 1929, the market essentially crashed right off the high. But interestingly, that followed 6 months of flat action to start the year and then a 90-day ramp. When the breakout pivot was violated, the market crashed.

2015 kept flirting with the possibility of a blowoff to new highs before, according to my cycle work, reversing south with authority.

Several times we pointed to the pattern from a fall low in 1972 followed by a false breakout to new highs in January and then a 2 year bear market. Clearly that was off the table when the SPX began to buckle to start 2016.

Often there is a false late stage breakout after a bull run as 'THEY' like to distribute stocks and short high.
Such was the case in 1929 and January 1973.
I can't help but wonder if the failure of the bull run from 2009 to setup such a bull trap, ending with a whimper rather than a bang speaks to an underlying weakness in the market and underlying ugliness of this cycle.

The long sideways stealth bear of 2015 where the average stock was carving out lower highs and lower lows lulled many players into a sense of complacency.

When the bell rang in 2016, the brunt of selling hit the tape on stocks that had held up, such as the FANGS. Note the false breakout in AMZN (ala the market in 1929 and 1973) before it crashed. Players  who wanted to push gains into 2016 were lined up to sell. And, selling begot a self-fulfilling spiral of selling.



Conclusion. The range from the SPX low of 666/667 in 2009 to the 2015 peak is 1468 points.

Because 1468 aligns with March 6-9 (the '09 low), this squares out the range of the advance.

This is more evidence of a major decline underway.

Is this the Big One? The short answer is it may be because few are saying that. Most are pointing to the possibility of a 20% decline at most or a backtest of 1600 near the last bull cycle high from 2007. Few if any take seriously the idea that the 15 year (180 degrees on the monthlies) Megaphone Top pattern projects the potential for a move below SPX 666.

But if 1460 snaps, it may play out that way.

As the monthly SPX below shows, 1469 was the close at the end of the last century and just months before the March 2000 Bubble Top.



In July 2007 (the primary high) the SPX carved out a monthly signal reversal bar. The close in July 2007 was 1455.

The pre-crash pivot high in May 2008 was 1440.

The breakout level in JANUARY 2013 occurred on a push over 1468.

Interestingly, the primary high in 2007 occurred on July 19 and the secondary high in 2015 was on July 20.

The pre-crash pivot high in 2008 was on May 20 and the all-time high was on May 20, 2015.

Obviously, these "sell in May and go away 'cliché's'" have nothing do with the start of the NYSE being on May 17.

Twitter: @JeffCooperLive

Want a free trial to Jeff Cooper's Daily Marker Report? Click this link now and you can access all his day and swing trading picks for free.
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No positions in stocks mentioned.

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