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Jeff Cooper: The Bull That Cried Wolf


Will the second mouse get the cheese in this unbreakable stock market?

The majority of traders suspect that the weak action is just another temporary shakeout off the highs since every recent occurrence has been a case of bears crying wolf.

Dips have been getting more and more shallow since October 2011, especially in 2014.

Of course, it seems too pat if the market's magic carpet ride that has flown the longest period without a 10% correction since 1928 should end with the Alibaba (BABA) IPO. Should we call it Alibubble?

This morning BABA is set to test 87 which is 90 degrees down from its first day high of 97.

Be that as it may, the SPDR S&P 500 ETF Trust (SPY) is set to test the last pivot low from 9/14 as it follows through from Friday's Key Reversal Day. This is the second Key Reversal Day on the SPY this month, the first being September 4.

Will the second mouse get the cheese for the bears?

A daily S&P 500 (SPX) chart shows that while Friday was not a Key Reversal Day, it did carve out a topping tail.

Moreover, there was something suspect about last week's low:

1) It failed to fully satisfy a test/undercut of the 50 dma.

2) It failed to turn the 3 Day Chart down.

Monday's knife down may have only been a triple witch hangover, but the follow-through from Friday's signal reversal bars should be respected given the substantial number of distribution days and divergences. Like all indicators, it is the market's reaction that counts.

Likewise, the follow-through from the Russell 2000's (RUT) close below its 200 dma on the important Friday weekly closing basis is a conspicuous warning.

200 trading days ago ties to early December 2013. If the RUT doesn't rally from here soon, the 200 dma is going to begin rolling over.

Additionally, the RUT is flirting with testing a trendline connecting the May/August lows.

The SPX has had a lot of trouble with capturing this 2000 level, which is 3X the 666 low. It lost 2000 once again on Monday. 

For the last month, we've walked through a slew of time/price harmonics that show the 2009/2010 level as pivotal. Amongst other things, this closing high level on the SPX is straight across and opposite 666/667.

Sitting Bull's last stand looks like 1973 SPX, which is 90 degrees down from the high. This ties to the 50 day moving average.

The 3 Day Chart on the SPX has not turned down since the important early August low. The angle of attack to the downside suggests such a turndown is in the cards. The subsequent behavior will be critical.

Downside continuation following a turndown in the 3 Day Chart here suggests quarter-end window UNDRESSING.

'Legally', mutual funds can't sell just ahead of quarter-end so selling pressure into the end of the month would constitute a notable change in behavior.

Interestingly, the 200 dma currently ties to the August low while a trend line connecting the April and August lows comes in at around 1950. An authoritative break of 1950 suggests the 200 day moving average comes into play. The 200 hasn't been kissed all year -- will it not remain an old maid through October?

The 200 dma also coincides with this year's spring highs. Notably, the key October 4 date will be 90 degrees in time from this year's 1897 April 4 high.

Remember October 4, was the big low in 2011 from which the market has never looked back.

Early October also ties to the bear market low in 2002 and the bull market peak in 2007.

The August low was a textbook time/price square-out with the SPX finding support at prior peaks as well. A second break below the spring highs and 1900 that holds below that level could see the wheels come off in October. Of course 1900, is a long way from here with just one day off the top.

However, if we don't get an opening low today on Turnaround Tuesday and the 50 day moving average and last weeks prior little swing low from 1980-ish don't hold, things could unwind quickly in the season of the witch.

Remember, false moves lead to fast moves and if players get a whiff that that last week's DJIA/SPX record highs were less than true, it could turn into a stench of falling prices -- quarter-end or not.

Moreover, from Friday, the stock market has two Hindenburg Omens on the clock. Two sightings confirms an official signal. The market's reaction to this indicator so far bears watching closely.

Additionally, optimism could turn to selling fear quickly in October going into the second set of Blood Moons in mid-October. This is a period where geopolitical events could upset markets.

Mr. Market has shrugged off a fair share of Hindenburg Omens, but a failure to do so in this September/October period is a red flag.

Conclusion. The DJIA/SPX just hit new highs and there are more stocks making new lows than new highs.

The RUT is down 3% since September 3, an ominous anniversary.

The 3 Day Chart on the SPY is turning down pre-open today, giving 3 consecutive lower daily lows near the level of its 50 dma.

The first hour or so this morning will be important.

If another shakeout is playing out, we should know early today. A reversal near the 50 dma could perpetuate a last ditch run into month-end/early October, but market internals stink with fewer and fewer stocks participating in the rally off the early August lows. Betting on new highs looks like the short straw.

However, it has been a market long on short straws. If the SPX should turn back up into early October, it is interesting that October 4 is 2038 days from the '09 low with October 10 being 2044 days up. October 4 aligns with a price of 2044 on the Square of 9 Chart... if the SPX turns back up once again.

As W.D. Gann pointed out, major turns are often seen at the end/beginning of quarters. I have mentioned some of the early October turns above. October 4 also aligns with 1576, the SPX high in 2007. It also ties to the last pre-crash pivot high (lower high) in 1987.

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Twitter: @JeffCooperLive

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No positions in stocks mentioned.

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