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Jeff Cooper: Yesterday's Indiscriminate Selling Coincides With an Important 60-Month Cycle


The time between important market peaks and troughs is often five years.

Get Jeff's commentary plus day & swing trading ideas each day with a FREE 14 day trial to Jeff Cooper's Daily Market Report.

Future stock market movements can be forecast by a study of past history and past movements. By knowing the time when the greatest advances have taken place and the times when the greatest panics and declines have occurred and the time periods to watch for major and minor changes in trend, you can detect what to expect in the future. Just remember one thing: Whatever has happened in the past in the stock market and Wall Street will happen again.

--W.D. Gann, 45 Years in Wall Street

There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. These are things we don't know we do not know.
--Donald Rumsfeld

Yesterday morning, I sent a note, "Holy Grail or Holy Fail?" (See here [subscription].)

A test of the rising 20-day moving average is referred to by many traders as the "Holy Grail" because it so often defines pullback lows in ongoing uptrends (and vice versa).

As flagged before in the Daily Market Report [subscription required], on Wednesday, the S&P 500 (INDEXSP:.INX), Russell 2000 (INDEXRUSSELL:RUT), and the bulls darling, Tesla (NASDAQ:TSLA), all rebounded following tests of their 20-day moving averages.

As noted in yesterday's Daily Market Report [subscription required], it was do-or-die time for the market. Either the rebound off the 20 DMAs would elicit momentum to new highs or a failure would play out.

The indication that a failure was in the cards was suggested by time-and-price square-outs by the RUT and the SPX in the first week of March.

The fact that both of these major indices scored square-outs at the same time suggests that a major turning point may be playing out.

Thursday's action was a conspicuous change in behavior -- a bearish change. The RUT and the S&P turned their daily swing charts up in the early going, which defined an immediate high, leaving the market suspect.

When the indices dipped into the red, I had a sense that the wheels could come off and that the factors fleshed out earlier this week in "Was That the Top?" [subscription required] were front and center.

To wit, I suspected that the S&P and the RUT could snap Wednesday's Bottoming Tails and their respective 20 DMAs in the process.

Daily S&P Chart:

Daily RUT Chart:

So, we as traders are left with a powerful Reversal of a Reversal sell signal: Wednesday's reversal was itself reversed on Thursday, setting up the prospect for a Hook, Line & Sinker pattern to be fulfilled today. Specifically, the dailies hooked back up Wednesday and early Thursday morning, suggesting another buy-the-dip scenario was playing out. However, something funny happened on the way to reeling in another doozy to the upside. Stocks line-drived downward, leaving the market vulnerable for the sinker part of the pattern, which could play out today.

Interestingly, my anonymous source tells me that on March 14, 2014, Pluto is opposite the natal Sun in the US birth chart. Apparently, this indicates powerful delusions coming to the surface and being revealed. Before you sneer at the tinfoil, I should let you know that my source manages billions of dollars.

I can't help but wonder if Thursday will go down as the day that buy-the-dip took it on the chin.

Midday Thursday, I sent the alert, "Keyser Soze and the Usual Suspects" (see here), flagging the notion that something big was afoot in the price action and geopolitically. Although, both were being greeted with a large dose of complacency -- until Thursday.

Earlier in the week [subscription required], I noted that April was a Fibonacci 618 months from the October 1962 Cuban Missile Crisis. This was the last big showdown between the US and Russia.

There is a referendum in Crimea this weekend, which nearly coincides with the Ides of March. At the same time, weakening economic data are undermining the markets. The news breaks with the cycles.

The Soviet Union ceased to exist on December 26, 1991. This was 267 months ago. Remarkably, March 6 aligns with 267 on the Square of 9 Chart.

The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) topped on March 7 when it left a Gilligan Sell signal. A Gilligan Sell is a gap up to a new 60-day high with a close at or near session lows. This is a signal I designed, which does a good job of identifying short-term turning points, which often become bigger-picture turning points.

Hourly SPY Chart From March 6 to Present:

Note the hourly Train Tracks on the SPY chart, which defined a high.

Is the market discounting some big-picture geopolitical storm, or is this just another selling squall?

If March 7 remains a high, then the period from mid-April to the last week of April is pivotal, since it is the Gann Panic Zone, 49 to 55 days from a high. April is opposite October, which is a period that ties to many crashes, and this April is apparently fraught with many nasty astronomic cycles.

Listening to the financial media, I hear that the market is "only" 2% off the high, and the decline is "only" buyers on strike rather than a rush to the exits. Really? So when the market is 10% off the high, will they be saying this is the "normal" 10% correction that everyone "knew" had to come? If the market is 20% off the high, will they tell us that now it's a bear market?

As legendary investor Bernard Baruch said, "Successful speculation is about anticipating the anticipators."

This is the purpose for studying the cycles and the technicals (distribution and accumulation days) and time-and-price vibrations (square-outs of time and price).

It is only the cycles and time-and-price square-outs that are predictive, while most all other indicators are descriptive.

The market has its own internal clock.

For some time, I've been flagging the 60-month-or-so cycle that defined the advance from August 1982 to August 1987, from the first quarter of 1995 to the top in 2000, from the October 2002 low to the October 2007 top. Yesterday [subscription required], I noted the five-year decline from the 1969 pivot high to the 1974 bear market low.

I've also wondered whether the analogue from a generational low in 1932 followed by a five-year rally to an important peak isn't being mirrored by a generational low in March 2009, followed by a five-year rally to an important peak.

This 60-or-so-month period is a fractal of Gann's master 60-year cycle. Remember that there was a major low in June 1949, which was the start of a secular bull market that lasted into the late 1960s. The low in 2009 ties to that 60-year cycle.

W.D. Gann wrote a book called 45 Years in Wall Street. He didn't call it "45 Years on Wall Street."

Gann was a man interested in the esoteric and numerology. Students of his have said he chose the number of chapters in his books and choice of words very carefully. He was obtuse in his writings so as not to reveal knowledge to those who were not true seekers, as a little knowledge is a dangerous thing.

The S&P and the Dow Jones Industrial Average (INDEXDJX:DJI) made pivot highs on December 31 and March 7. These highs are 45 trading days apart. This mirrors the 1974 October and December bottoms and is within a few days of the 2000 tops.

The angle of attack down in the major indices following the S&P and the RUT square-outs in the first week of March and following this 45-trading-day periodicity suggests an important turning point.

Additionally, yesterday's knife down through the prior peaks around 1850 violates the concept of prior highs turning into new support. Moreover, yesterday's large range outside down days in the S&P and the RUT target their 50-day moving averages, with the stab below the February 28 spike high day, suggesting that day was an exhaustion day, a Buying Climax. When the shorts are squeezed out, the market can hit an air pocket. When longs who may have chased the record high or Wednesday's theoretical Holy Grail buy setup realize they've been "had," a wave of selling can take hold. When smart long-term bulls see a possible exhaustion high followed by a decline below prior peaks (1850 S&P), a Get Out of Dodge trade can unfold with indiscriminate selling hitting the tape.

This possible Get Out of Dodge or Cascade setup could unfold for the following reasons:

1. There is a Grail Fail (a failure of a rebound off the 20 DMA).

2. The RUT and the S&P look like they are on a quick trajectory to test their 50 DMAs.

3. A break of the 50 DMAs suggests a test of the 200 DMA. Why? Because the February low did not satisfy a full test of the 200 DMAs.

4. We as traders may be starring down the barrel of a Thursday, Friday, and Monday waterfall event (something that played out in 1987, for example, but can occur with varying amplitudes).

In January, a stab to the 20 DMA led to a puny one- to two-day bounce, followed by a sharp 120-point S&P decline. Wednesday's test of the 20 DMA led to a multihour bounce. Is it possible that a mirror-image decline will play out with another sharp decline? Perhaps the decline into early February was an A wave followed by a B wave to nominal new highs, with a sharp C-wave decline beginning right here.

Conclusion: A cluster of cycles and square-outs from the first week of March is exerting its downside influence. I've warned that the bulls should hope for a low around the early March anniversary of the 2009 low rather than a spike up into the anniversary.

However, as occurred on the important 60-month and 120-month anniversaries in the fall of 2012, traders must be mindful of a big low playing out, plus or minus the five-year anniversary of the low. If that is going to play out, a flush-out low could play out somewhere between next week and the first week of April. Why? The first week of April is 180 degrees from the important October 9, 2013, low. This is the same pattern that I identified calling for a major low in gold in late December, 180 degrees from the late June low. Gold made a double bottom in late December and has been in a nice uptrend since.

Is it possible that the S&P will make a double bottom with the February low near the 200 DMA or even the October low (around 1650) in coming weeks?

In any event, if the recent highs are reclaimed, the bull lives.

That said, it has been 52 years since 1962, which as noted above is an important time frame. Gann believed that just as 52 weeks (the yearly cycle) is an important natural cycle, so, too, was 52 months. Fifty-two months ties to the important four-year cycle (4.4 years, specifically), which typically ties to a low. For example, in recent history, these cycles have completed themselves in 1994, 1998, 2002, 2006, and 2010. Will 2014 mark another trough?

Obviously, if 2014 is going to mark another cycle low, it should be a doozy as the market is just coming off record highs.

Lest you think my view of the market is too wrapped in tinfoil, the other day I received the following from a money manager friend:
"There was a large solar flare (geomagnetic storm) on Monday, March 3. Attached below is a piece from the Atlanta Fed describing the effects of geomagnetic storms on the stock market." (See here.)

I can't help but wonder if the flare-up in euphoria going into the first week of March was agitated by this solar activity and whether it coincided with a top. I can't help but wonder whether an unknown Black Swan is about to hit the market.

Form Reading Section:

Yelp (NYSE:YELP) Daily and 10-Min. Charts:

Twitter: @JeffCooperLive
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