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Jeff Cooper: Will Investors Lose Faith in the Rally and the Fed?


A significant market turning point may occur this month.

This article originally appeared on Jeff Cooper's Daily Market Report. To get Jeff's commentary plus day and swing trading ideas each day, take a FREE 14-day trial to Jeff Cooper's Daily Market Report.

I will bet from beginning to the exit, the wealth affect of QE will have been negative, not positive. Negative.
-Stanley Druckenmiller

This wealth effect [the Fed has] been using to prop this thing up, once that's removed, you go down on no volume, you re-price.
-Stanley Druckenmiller

The market has a nasty habit of testing new Fed chiefs. Is that what yesterday (March 19) was all about -- "someone" gaming the market? Regardless of what Janet Yellen said, was the plug going to be pulled, just because?

If the market and the economy are so strong, does the notion that rates may rise one day more than a year out cause a two-hour, 200-point Dow Jones Industrial Average (INDEXSP:.INX) smashola? Really?

Does the Fed Whisperer (Jon Hilsenrath) stir the notions that hedge fund manager Stanely Drunkenmiller uttered in the above quotes?

Does yesterday's air pocket indicate that there are many players who are just going through the motions and dancing to the performance music, but will run for the exits at the first hint of the drummer missing a beat?

Is the exit big enough for market participants who believe that the January decline was not enough to work off the overbought sentiment in 2013, and that therefore the next sell-off will turn into something larger than needed to work off that sentiment because the exit is not big enough?

Trying to rationally decipher the reasons in the market, especially this market, is like struggling at archery; I once heard a trader say that if someone is struggling at archery, he or she is doing it wrong.

A trend should be effortless, like 2013. The glamour stocks are struggling here.

While the S&P 500 (INDEXSP:.INX) reclaimed more than 50% of the recent give-back into Tuesday's close and looked like it was poised for a nominal new high, the turn-up in the 3-Day Chart underscores the concept that time trumps price, that time is more important than price. In other words, it was not how much the S&P retraced in determining where this week's bounce-back could terminate, but rather, it was the behavior of either of the following:

1. A Minus-One/Plus-Two Sell setup (which occurred on Tuesday).

2. A turn-up in the 3-Day Chart (on three consecutive higher daily highs).

The 3-Day Chart turned up in the early going on Wednesday as the S&P traded fractionally above Tuesday's high. The turn-up did a good job of defining a high before Janet's Dot-and-Dashboard game began.

As offered above, while the S&P looked like it was on the verge of a new high, a bottoms-up look at many of the glamours reveals they were tired and nowhere near new highs.

Let's take a look at a few of the leaders.

Wynn Resorts (NASDAQ:WYNN) has been on fire, up over 50% from December 2013.

However, a daily Wynn Resorts chart shows that it was substantially below prior highs and backtesting its overhead 20 DMA on Tuesday.

Daily Wynn Resorts Chart From December With Its 20 DMA:

Jazz Pharmaceuticals (NASDAQ:JAZZ) is a name that I've walked through recently, and it remains waterlogged below its declining 20 DMA, threatening a right shoulder.

Jazz Pharmaceuticals Chart:

Tesla (NASDAQ:TSLA), the heart and soul of speculative sentiment, turned its 3-Day Chart up on Wednesday for the first time since a high and promptly carved out an outside down day. Tesla looks like it has eyes for Gapwindow around $220. Remember the $222 square-out? Will a prior "square" become new support?

Tesla Chart:

Highflier FireEye (NASDAQ:FEYE) bucked yesterday after prior resistance failed to turn into new support, closing below its 50 DMA in the process.

Notable are the Train Tracks from March 5 and 6, which left an Island Top. Is FireEye slated to be magnetized to January's upside gap in the low $40s? As above, so below?

Daily FireEye Chart From December Through Present With Its 50 DMA:

Yesterday  I sent an early note [subscription required] that GW Pharmaceutical (NASDAQ:GWPH) set up for an upside try as its 3-Day Chart had turned down on trade toward its 20 DMA. GW Pharmaceuticals exploded but gave up the ghost. The behavior in this highflier yesterday underscores that the leaders look tired.

GW Pharmaceutical Chart:


A classic FOMC Cha Cha Cha played out yesterday. Remember that after the Fed's "decision," the first move is followed by a move in the opposite direction and the third move is the genuine directional bias. It is remarkable how the pattern has held up throughout bull and bear phases and from one Fed chairperson to another in the modern era. I can't help but wonder if this pattern played out prior to Paul Volcker.

10-Minute S&P Chart:

Tuesday's closing high for the snapback was 1872. Checking the Square of 9 shows that 1872 is straight across and opposite March 18. Today is also the Spring Equinox, which was an important natural turning point (plus-or-minus a week) for W.D. Gann.

I think the 1872, March 18 time-and-price harmonic underscores and reinforces the strength of the 1877-1878 March 7 square-out (1878 is straight across and opposite March 7). I think the fact that the March 7 square-out occurred on the 60-month anniversary of the 2009 low also reinforces the power of "1870" resistance. Since March 7, the S&P has carved out four outside down distribution days in nine sessions. March has seen important turns in the markets since 2000. These two square-outs from March 7 and then Tuesday's square-outs at 1878 and 1872 respectively, have rejected the market with authority, underpinning the notion of a significant turning point occurring this March.

Twitter: @JeffCooperLive
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