Jeff Cooper: This Could Cause a Waterfall Event in Markets
At the very least, expect a test of recent lows next week.
The situation back here gets no better fast.
-- Harry Truman on the day he unexpectedly became president
The reason why rivers and seas receive the homage of a hundred mountain streams is that they keep below them.
I never thought that anything was irksome if it helped me to trade more intelligently.
I was going to write this report about a new trading school that I'm thinking about starting for traders who want to go to the next level and learn how WWIII, bad earnings, and Japan's economy going to hell in a hedgie cart are bullish, but I decided to pass. Everyone already knows this.
One of the scarier things I've heard lately is that ordinary Japanese are trying to protect the value of their capital by resorting to currency margin trading. Japanese housewives have taken to trading FX as a means to fend off inflation and stagnant wages. Much like in the US, folks are trapped between rising prices of the things one needs, like food and energy, and flat wages and zero interest income.
The second scariest picture I've seen recently (after Putin bare-chested on a horse) is the headline, "Stocks extend win streak to three days; DJIA up 162."
I don't mean to be sarcastic. It's just that I trade for a living and have been in the markets since the early 1980s. Win streak?
I mean the Dow Jones Industrial Average (INDEXDJX:.DJI) is up for three straight days, but for crying out loud, how many stocks just cratered below their 50- and 200-day moving averages this month?
But, seriously, if the market is in a weak position, a turn up in the 3-Day Chart for the first time since highs will mark a high soon, in terms of both time and price. The Dow already turned its 3-Day Chart up on Wednesday (April 16).
So, Thursday, being a shortened options expiration week and going into a long weekend following misses by Google (NASDAQ:GOOG) and IBM (NYSE:IBM), should be interesting.
Of course, some will say that manufacturing earnings has replaced manufacturing on Wall Street. Of course high frequency traders (HFT) have replaced earnings as the mother's milk of capitalism -- just like magnets replaced the gears on the roulette tables in Vegas once the mob rolled up their shirt sleeves and realized that skimming wasn't enough.
Following Monday's (April 14) and Tuesday's (April 15) roller coasters, the trend day anticipated for Wednesday (April 16) came with the major indices closing on their high of the day. The last time this happened was April 9 prior to a sharp decline, point A on the chart below.
Daily NASDAQ-100 (INDEXNASDAQ:NDX) Chart:
There are some differences between then and now. For example, the NDX has the benefit of a large range Bottoming Tail on Tuesday (April 15) near a test of its 200 DMA, point B on chart. The presumption is that Tuesday's substantial reversal will lead to at least a turn up of the 3-Day Chart. But you never know. Note the last two times the 3-Day Chart turned up on the NDX following the March peak. That could occur today, in front of the long weekend on trade back above Wednesday's (April 16) high. While the S&P 500 (INDEXSP:.INX) has retraced more than one would assume in keeping within a bearish framework in reclaiming the 1840 and 1850 breakdown levels and recapturing its 50 DMA, the important thing to consider is that "Time Turns Trend," [subscription required] not price. In other words, it is the behavior following the turn ups (and the turn downs) in the 3-Day Chart and the Weekly Swing Chart that will determine the intermediate trend. The behavior following the turns in the Monthly and Quarterly Swing Charts will speak to the position of the primary trend. As you know, the NDX turned its Quarterly Swing Chart down on Tuesday. In keeping with the "Principle of Reflexivity," a reflex rally played out. Until there is a Follow Through Day and until the Weekly Swing Chart turns up followed by constructive behavior, the series of significant distribution days in the NDX looms large.
Recapturing the important 1840 to 1850 S&P level ties to reclaiming the 1855-day square-out count from the March 6, 2009 low to the April 4, 2014 peak. Of course, 1850 also ties to the important late December 2013 and mid-January 1850 peaks. As long as 1850 holds, theoretically, the S&P is in a stronger position. Authoritative trade back below 1855 and especially below 1840-1850 leaves the S&P suspect, with Mr. Market looking through Google rose-colored glasses.
So, today is an important day. Last Thursday's (April 10) smash looks like it may have been a Misdirection Day. Often times, the Thursday the week before options expiration day sets up a squeeze in the opposite direction into monthly option expiration. Options expiration day may have burned out yesterday (April 16) with a market on close buy program with the market closing right on its high prior to Google and IBM earnings. A setup.
Late yesterday [subscription required], I sent a note flagging the possible measured move in IBM. A fellow trader pinged me to add that the February 4 low was 90 degrees square 197. Folks, you can't make this stuff up.
IBM Daily Chart:
The analogue of the Gann Panic Window has the cycle exerting its maximum downside pressure next week -- if it is to do so. If Tuesday's (April 15) Bottoming Tails on the major indices snap, the presumption is a waterfall event. At the very least, I would expect a test of the lows next week. The S&P still has not satisfied a test of its 200 DMA and its February low like the NDX. If that is the agenda, that move should begin next week. If the NDX snaps its 200 DMA with authority, accelerated momentum should play out similar to the action in the fourth quarter of 2012.
If you are bullish, I would exercise patience through next week.
Daily NDX Chart From August 2012 to Present With Its 200 DMA:
Form Reading Section:
10-Minute Amazon (NASDAQ:AMZN) Chart:
10-Minute Workday (NYSE:WDAY) Chart:
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