Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Dr. Dollar and the 10-Year Incriminate Equities


The market may be about to undergo a change in character.

It's waiting that helps you as an investor, and a lot of people just can't stand to wait.
-Charlie Munger

Cyclically, the 6 to 7 week period from the end of August to early October is the window for the culmination of a multi-month move.

Underpinning this analysis for a change in trend and a possible sharp decline in/through October is the pattern of the full revolution of the 7-year cycle of 360 to 365 weeks.

Last week, we mentioned the Shemitah which ties to this 7-year cycle.

Notably, there was a waterfall decline in 1980 followed by a crash 7 years later in 1987.

1994 -- 7 years after 1987 -- was the worst bond market in a generation. When bonds stopped going down, the relative strength in equities led to an explosion.

The 2008 crash was 7 years after the 2001 crash.

The 2009 bear market low was 7 years after the 2002 bear market low.

7 years after the secondary higher low in March 2003, the S&P 500 carved out a major higher low in 2010.

Some players may believe that even if this 7-year cycle points to a large decline ahead or even a bear market, that there is time to run until October. This is because October 10, 2002 marked a bear market low and October 10, 2007 marked the bull market peak.

The market is not a fine Swiss watch. It feels way too pat for another major turning point to play out on October 10.

Moreover, being open to plus or minus a month in terms of timing should be a guiding principle.


Following a sharp slide into early August which snapped an longstanding rising wedge, the SPX nominally exceeded its July peaks. Last week saw a close below the late July peak (1990) on the important Friday weekly closing basis.

The index settled at last ditch short-term support at 1985, which ties to the early July peak.

At the same time, both the Dow Jones Industrial Average (DJI) and the NYSE Composite (NYA) have rallied up to their July peaks and failed to close above them, setting up the possibility of double tops.

The peculiar thing is the pattern of a high in July, a shakeout into August, and a return rally test of highs, which mirrors the pattern that played out 7 years ago in 2007.

The daily pattern of the SPX in September exemplifies the short-term change in trend which we stated early in the month should see a trajectory, one way or the other, into the Autumnal Equinox on September 22.

The above chart shows the September 4 Key Reversal Day which ties to the September 3, 1929 high.

Some may consider anniversary dates to be voodoo technicals, but the great WD Gann paid close attention to them.

Moreover, the early October anniversaries from 2002 and 2007 and the early March anniversaries from 2003 and 2009 indicate interesting vibrations at work.

The 9/3/29 high was 85 years ago and 85 aligns with the first week of October.

Interestingly, the dollar has spiked to 85 which ties to prior pivot highs as shown in this space last week.

Be that as it may, the daily SPX for September (above) shows that despite the rally attempt subsequent to the 9/4 Key Reversal Day which should have set up higher prices if the short-term trend were still up, the index proceeded lower, testing the 1985 early SPX peak multiple times last week.

Overnight on Sunday, the futes are down 7 points, threatening a breakaway gap below little triple bottoms at the 1985 level on the hourlies from last week. Follow-through probably indicates a test of the 50-day moving average now at 1972.

A break below the 50 sets up a test of a 50% retrace of the August/September advance at 1958.

I would not be surprised to see the 200-day moving average (now at 1888) tested on an a failure below the 50 and 1958 SPX.

1880 is 270 degrees down from the all-time high of 2011 and 1880 aligns with September 3/4. This may become a forward example of price pointing to time and time pointing to price -- a square-out.

Gann Methodology suggests that any market (stock) can decline 270 degrees in price and still be considered to be within a long-term uptrend.

Because a 270 degree decline from the early September high ties to a test of the 200-day moving average, the presumption is a rally would play out on the first test of the 200 dma in a long time.

That's the presumption.

If the SPX should decline to its 200-day moving average in the coming weeks and a short-lived rally (as in a few days) plays out with a subsequent rollover, I think there is a better-than-average likelihood of a waterfall decline in October.

Last week, 10-year yields ripped higher. Friday's plunge in IYR underpins the notion that the rise in rates is for real and that the tide has turned. This further underscores the idea of a turning point in stocks.

Checking a monthly TNX from 2007 shows that a breakout over 3%, which looks like the neckline of an inverse Head & Shoulders, projects to around 4.50%.

Conclusion. Last week I stated that"when currencies in a derivative-based financial system trade like Internet/social media names, it is a prescription for instability."

On Friday, I received the following note from a fellow trader:

"Volatility can only be suppressed so far; like holding a ball underwater, when it snaps and pops there will be hell to pay. Since the markets are so highly correlated due to the Central Banks' manipulation and suppression of risk, a jump in volatility in any of the markets will have carryover effects in all other markets. A little over a week ago, the currency markets started an explosion in volatility, this week the interest rate markets started to follow suit, with some bleed over into equities. Overall, manipulated markets can only last so long, since all derivative bets end up in one direction, at which point the markets reprice risk violently."

Form Reading Section

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.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos