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Jeff Cooper: Reversal on Time


Market cycles may be set to exert their influence.

The SPX, RUT and NAZ all carved out Key Reversal Days to kick off the week.

A Key Reversal Day is a new swing high with a close below the prior day's low.



Note that the RUT went from an all-time high on Monday morning to a 1 month closing low testing its 50 day line in the process.
Not all Key Reversal Days are created equal -- when they come from new all-time highs caution is warranted.
Moreover, as readers of this report know we have been pointing to the month of April as a potential major turning point based on a cluster of time and price symmetry going back decades.

In my experience, when a reversal occurs right at a possible turning point, it underscores the importance of the potential turn.

The benefit of using the time element in analysis is that it will clue you in as to when a price move may be significant.

Topping off the big picture cycles on a short-term basis, the Square of 9 Chart, 2123 (SPX) aligns/vibrates off April 27.

The important thing to understand is that not every time/price square-out is a major high (or low) but every major high or low is a time/price square-out. W.D. Gann said to key off the weeklies to determine the intermediate trend. The closing weekly low in 2009 was 676. On the Square of 9 Chart 676 aligns with early May.

The fact that several indices printed key Reversal Days today underscores the significance of this time frame.

Of, course follow through, as always, is key.

If the SPX turns its weeklies down (on trade below last week's low) and continues to see selling pressure, it's a further sign that cycles may be set exert continued downside pressure.

It would be telling if the SPX traced out a Key Reversal WEEK on top of Monday's Key Reversal Day.
The most glamorous speculatives are usually the first to get thrown overboard when players hit the sell button. The biotechs plunged on Monday.

Potentially bearishly, IBB fell out of bed following a test of the low of the high bar day -- the signal reversal day from March. In the process, IBB careened right to its 50 day moving average.

Since December, each prior test of the 50 day line by the IBB defined a low on a substantial increase in volume. Will we see a change in character this time around? If so it will further serve to underscore the significance of our late April turning point.

Will the 50 day hold or will IBB trigger a Rule of 4 Sell on a break of a 3 point trend line from last October?

Fast moves often follow Rule of 4 Sell signals.

Conclusion. We got Key Reversal Days across the board. If the weeklies close below last week's lows, the indices will set Key Reversal Weeks.

Be that as it may, trades below last week's SPX low will turn the SPX Weekly Swing Chart down. If this occurs and the index continues lower, it is a bearish sign coming off a test of all-time highs.

Just as it looked like the market was set to extend with the NAZ scoring a new closing high above its high in the year 2000 and the SPX setting a new record high on Friday, the market reversed in keeping with its indecision pattern that has dominated all year.

This indecision is exemplified by the fact that December 29th, 2014, the DJIA closed at 18,038. On Monday, the Dow Jones Industrial Average (DJIA) closed at 18,038.
The DJIA never set a new high on this last push higher leaving a potential serious non-confirmation.

Gold rallied hard on Monday, reversing Friday's stab down. Upside follow through will be constructive as fast moves often come from false moves.

The XAU has traced out one of its most pernicious and long lasting bear markets in history.

The monthly XAU (gold silver index) below shows it tested the 2008 low and may have carved out a W Bottom.

My expectation is for gold to rally toward 1500 this year.

Turning the Monthly Swing Chart up in May on trade above the April high and rallying will be a sign that a sustainable advance has begun.
Strategy. There has been a lot of indecision in the market this year. Yesterday's sharp selloff in biotechs will create more indecision.

Moreover many names in the group look like they are declining from buying climaxes.

Names include Alnylam Pharmaceuticals (ALNY) and Incyte Corp (INCY).

Names like ISIS Pharmaceuticals (ISIS) and Alkermes (ALKS) which were showing weak relative strength got hit bad yesterday.


Form Reading Section

Yesterday morning we sent notes out on GBX looking shortable and reiterating last week's note on Tesla (TSLA) targeting 238.

See yesterday's note on TSLA here

See last week's note on TSLA here

Twitter: @JeffCooperLive

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