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Jeff Cooper on S&P 2000: Be Careful What You Wish For


New record highs in markets could also introduce new risks to the equation.

After a strong start to July, the promise of a runaway move was in the summer air.

However, the S&P 500 (INDEXSP:.INX) set a high on July 3, right on our idealized July 4 cyclic vibration turning point.

Yesterday that high was bettered, marginally so. The July 3 closing high record still stands.

So, it will be interesting to see if momentum can be generated for the presumed kiss of 2000 before the week is over or whether the index stabs meaningfully back below the July 3 high for a possible Soup Nazi sell signal.

The key pivot on any decline remains the 1965 level. This ties to the number of days from the March '09 low. Additionally, 1965 ties to and aligns with March 6 on the Square of 9 wheel -- an important vibration since the bear market low fell on March 6.

Today is straight across and opposite a price of 1990/1991, yet another reason for the bulls to be thwarted from satisfying the kiss of SPX 2000.

That said, trade above 1990/1991 certainly should perpetuate a move to the elusive round number.

It is worth reading my recent note [subscription required] that showed a price of 2006 aligns with 1075, the major higher low from October 2011.

That October 4, 2011 low was actually part of a pattern low that started with an initial waterfall low in the first week of August 2011, with October 4 being an undercut low.

So it will be interesting to see what the first week of August brings as it is straight across and opposite the low for 2014, the early February low.

In addition, the first week of August will mark a 3-year cycle, an important short-term cycle.

Note that the October 2011 low was just about 3 years from the November 2008 crash low.

As the SPX approaches 2000, keep in mind that in the past, there has been a strong reaction near each round number milestone -- the key word being 'approaches'.

In the past, the reaction often occurs with the SPX just shy of kissing the milestone.

What kind of reaction?

A minimum decline of 3%, but typically, a bigger one plays out.

Keep in mind as well that breadth has not been strong the since the early July cycle highs.

Last week, with the SPX near its all-time high, the New York McClellan Oscillator was negative, moving to below -60 at the end of the week.

In normal markets, a low NYMO like this plays out after at least a few weeks of selling, coincident with a low.

This is one of the factors for my Sell Signal note [subscription required] issued just before the open Thursday. Downside follow-through from Thursday went AWOL.

However, the lack of downside follow-through may have inspired misplaced confidence.

The number of instances when the SPX is at an all-time high with a meaningfully negative NYMO is small, and when it has occurred, it precipitated further selling.

So, despite Tuesday's new high, I am not sanguine about the SPX' prospects.

To be blunt, this is an unhealthy market.

With the NASDAQ (INDEXNASDAQ:.IXIC) just off record highs, only 40% of its components are above their 50-day moving averages.

Poor participation is also evident in the small cap Russell 2000  (INDEXRUSSELL:RUT), which is conspicuously below the early July cycle peak.

Following an inside day on Monday, the RUT gapped up to challenge its overhead 50-day moving average on Tuesday. The bull case is that this week's action is on the heels of potentially bullish Train Tracks at the 200-day moving average.

Also on the constructive side of the RUT ledger is that last week's low coincided with a backtest of a Live Angle off the March high.

That said, trade above Tuesday's high today will put the RUT in the Minus One/Plus Two sell position for the first time since its record high (A).

So today should be a good test for the RUT. At the same time, be aware that if momentum shows up in the broad market, that the RUT could get a head of steam to horizontal resistance that coincides with its overhead 20 dma at 1172.

The behavior in the RUT on either a Plus One/Minus Two sell OR a turn up in the important 3-Day Chart will be telling. If the RUT is in a wave 3 down, then the RUT should turn down hard before the end of the week. If so, this should tie to a peak in the SPX/DJIA as well.

Conclusion. After so much romancing and flirting with the 2000 level on the S&P 500, it's hard to believe the deal won't be sealed. But it's just as hard to believe buyers will show up in droves to be the first on their block to bid above 2000 -- just as it is hard to believe bulls won't be inclined to realize gains at this milestone. Moreover, the 100% rule (up from the 2011 low) is congruent with the 3-year cycle. An authoritative move above 2000 could be the gateway to a literal 100% gain off the 2011 low into the end of the summer.

Form Reading Section


One interesting name name that can really move if the broad market tone is firm today is Arista Networks (NYSE:ANET), which turned up yesterday.

Yesterday, we showed the following daily chart on Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ).

GDXJ turned its dailies down on Tuesday, followed by a return rally playing out to test session highs. However, a late day sell-off leaves GDXJ looking vulnerable to snapping its 20-day moving average after the first test held last week. Note the series of lower highs on the short-term chart below.

Twitter: @JeffCooperLive

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