Jeff Cooper: Is the Stock Market Real?
We could see a sell-the-news reaction to Fed Chair Janet Yellen's speech in Jackson Hole today.
Does this look and feel like a natural market to you?
That's not a market.
That's a tractor beam.
It looks and feels like something that isn't human.
"This mission is too important for me to allow you to jeopardize it."
Be that as it may, the SPY is closing in on the apex of another rising wedge, mirroring the 6-month rising wedge on the dailies that snapped in late July/early August.
In this age where the "Fed has our backs" mentality dominates, there has tyipcally been a shakeout prior to Fed news, which pulled the rubber band back for buy programs to come in on big Fed days.
This time around, there's been a straight line up into Yellen's speech.
So despite the proclivity for bull markets to close at new highs on Fridays, a sell the news could play out after a peak above 2000 SPX cash.
Did a 'first break' (off the July cycle high) set up a test failure test of highs?
Trade with authority back below the July high would witness a change in character of the market in as much as a stab back below prior highs acting as support has not played out this year.
Moreover, note the convergence of the 50 and 20-day moving averages around 1950, just above the key 1947 level.
If the market turns down from a peak in late August/early September and breaks these moving averages, the indication is that a failure played out on a test of the highs.
It is worth repeating something pointed out several times in this space: price and time square-outs, like any other indicator, must be validated/confirmed by technicals.
This could come in the way of a retracement of more than 50% of a swing, a simple break of a trendline, or the break of a prior swing high or low.
Not all square-outs are created equal. Any forecast derived by a square-out must be validated by the ensuing price action.
The two charts below of Franco Nevada (FNV) and Gilead (GILD) show the power of the Square of 9 Methodology.
Click to enlarge
Click to enlarge
Conclusion. The staunch straight-line move off the early August square-out is impressive. But is this a last-ditch run into what has defined historic highs in late August/early September, or a new leg up?
Spikes into late August/early September have marked many major tops.
Moreover, this spike follows a persistent 5+ year advance.
I continue to think that we will get a fall debacle. Psychology and sentiment are ripe for that potential and technicals are strange with the largest volume days on the downside.
Strategy. It's been a choppy market in individual names with sketchy follow-through. Continue to adhere to stops, and stalk setups that may not trigger immediately but do so after a Pause Day.
P.S. If you are interested in purchasing a physical 2.5 square foot Square of 9 Calculator including a consultation on how to use it, please contact me at firstname.lastname@example.org.
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