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Jeff Cooper: Monty Python Meets Kafka


After the wolf cried bull in October, the market may be blowing off.

I cannot make you understand. I cannot make anyone understand what is happening inside me. I cannot even explain it to myself.
-Franz Kafka, The Metamorphosis

Suffice it to say. there's a lot of frustrated bulls and bears out there.

What seemed like a bonafide break in October proved to be a wolf that cried bull.

Just look at the escalator since October 2011.

It's worth remembering that October 2011 was a large-range outside up month. As I often sau, range precedes price.

But who knew volatility would take a holiday for 3 years... until October 2014?

Of course, this past October was 6 squared months or 36 months from the October 2011 momentus low, so a reaction was indicated.
It looked like a mirror-image foldback may have been playing out.

However, the SPX recaptured the lower rail of the rising wedge just above 2000 four weeks ago.

Now the market is approaching the 6th anniversary of the November 21 '08 crash low.

On November 21, we will be 2085 days from the March 6, 2009 bear market low.

Interestingly, a price of 2085 SPX ties to 540 degrees up from the October 15, 1820 low.

This is potentially important because 540 degrees is a true square. It is a cube of 6 sides of 90 degrees (90 X 6= 540).

In my study in 2005 of every swing, time wise and price wise in the SPX since 1941, I discovered the significance of 540 degrees (in both time and price). Late November/early December will be 540 degrees in time (18 months from an important swing low in June 2013. This was an important low because it preceded the sustainable breakout over the 1576 top from October 2007.

As offered above, there are a lot of frustrated bulls and bears out there. The only ones who aren't frustrated are those geniuses who bought the virtually picture perfect 10% decline into this October 15th and naturally never sold. They never expected a pullback during this stampede.

They anticipated all-time new highs with nary a breather. As I said geniuses one and all---whoever they are. And judging from the mainstream media nearly everybody who parades themselves across the tube are geniuses.
God bless their pointed little heads.

So, basically since the SPX recaptured its 200 dma on a gap, it's felt like someone is crying theater in a crowed fire.

He was a tool of the boss, without brains or backbone.
-Franz Kafka, The Metamorphosis

Mr. Market always has a penchant for the perverse, but the rollup since October 15 has been nothing short of a financial Monty Python skit on acid.

To be sure, the metamorphosis following the decisive break of a 3-year trendline from beast to beauty in a few short weeks is akin to the Fed snake oil salesmen parting the red sea.

The turnaround has the fingerprints of The Hand all over it, just as Friday's upside reversal in gold did.

Gold and the miners gapped down sharply from the get-go on Friday, but turned from an opening spike low out of the blue.

Patterns like that don't just 'happen'. They are planned, orchestrated in my opinion.

The hook was set. The stops on the longs were flushed out and as the last remnants of the longs capitulated, Someone opened the buy bag and turned the tide taking offers promiscuously.

And they haven't stopped.

GDXJ is up almost 30% in 9 days.

On Tuesday, GDXJ flirted with the $30 strike. Monday's close over the 20 dma telegraphed Tuesday's extension.

Note that Tuesday's action left a close over a 2-month declining trendline.

The Square of 9 did great job of identifying the turn in GLD and GDXJ. This a tool all serious traders should have.

The hourly GDXJ below shows Tuesday's Rule of 4 breakaway gap implying a trend day to the topside. That's exactly what played out.

The shorts and the bulls have were hoping for a pullback from the 20 dma, but GDXJ was having none of it. Both camps should be all over GDXJ -- IF we get a quick pullback toward 28 that ties to a gap-window from yesterday.

Conclusion. The SPX trapped bears and sold out bulls alike on the first break of a multi-year rising wedge. However, another break below 2000-2019 and the lower rail of the wedge should put the SPX in a very weak position.

Strategy. Those of you who are relatively new to this report will immediate recognize that although I have been expecting a reaction from 2039, that I've been mechanically taking a lot of long side signals.

It's one thing to be intellectually bearish, it's another to be opportunistically bullish. The advantage we have as traders is that we can easily get out -- big funds are not so agile. 

Consequently, even if we may be bearish on stocks, we can take long setups and easily exit.

A quick look at the weekly SPX above shows that the upper rail of a wedge has been tagged several times since the spring of 2013. While the SPX has reacted to each test, it has pushed to new highs each time.

That said, it looks like the index has carved out 3 distinct drives to the upper trendline prior to October's waterfall decline.

Markets often play out in threes. The implication is that the market may be blowing off -- mirroring the toboggan six years ago this November.

Caution is warranted on a break back below 2000-2019 (the September peak).

P.S. If you missed my recent webinar The Jeff Cooper Blueprint: 5 Trading Setups That Just Plain Work, a replay is now available 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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No positions in stocks mentioned.

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