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Is the Son of Flash Crash Lurking?

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Rollovers in Apple and Google could portend a broader decline.

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Editor's Note: The following is a free edition of Jeff Cooper's Daily Market Report. For a two-week FREE trial of his daily commentary and nightly day and swing trading picks, click here.

Take a cha-cha-cha chance
-- "Birthday" (The Beatles)

For the first time in a long time, stocks remained in the red most of the day on Monday.

Although they rallied off the low, yesterday's waterlogged change in character was apparently the writing on the wall for this morning's breakaway gap.

While the S&P 500 snapped back somewhat after testing its 20-day moving average, yesterday's decline failed to turn the Weekly Swing Chart down on trade below last week's 1,354.92 low.

That turn down will be satisfied this morning, and the question is whether it will provide for a possible Turnaround Tuesday on this, the third anniversary of the 2009 low.

It will be the behavior over the next few days that will tell us much about the character of the market, and whether the big cycles are truly exerting their downside pressure here and now.

Note how every turn down in the weekly S&P since the major higher low at the end of November has defined a low immediately.

This occurred on the week ending 12/23 and the week ending 2/03.



So, since last year's early October low, the weeklies show three higher lows following turndowns, late November, late December, and early February.

Based on the weekly swing chart, it is possible to count three waves in time. The behavior on a turn down here in the weeklies should tell us a lot about the position of the market, the significance of another March turning point, and the big historic cluster of cycles and time/price squareouts (that we have walked through in recent weeks), identifying mid-February to mid-March as a potential major high signaling a global double-dip.

This morning's breakaway gap through the 20-day moving average, which has been well supportive since mid-December, targets a minimum 50% retrace toward 1,339. This represents the mid-point of the range from the only meaningful correction from late January's 1,300.49 low to last week's nominal new swing high at 1,378.04.



A decline to 1,339 closely coincides with the key 1,333 pivot, which is 2X the March 2009 low.

So, it would be interesting indeed if we got a mini-Flash Crash of sorts that took the S&P down to 1,333-ish this week. Remember that it was 666 days (the vibration off the price low in 2009) from the May 6, 2010 Flash Crash to last Friday.

A 50% retrace of the range from the mid-December low to last week's high gives 1311/1312. With the monthly low, or February's low of 1312.45, is it possible that downside acceleration here could see the S&P magnetized to a test/turndown of the Monthly Swing Chart on trade below 1312.45?

With Apple (AAPL) caving in on Monday, a continuation there below the prior spike high of $526, and with Google (GOOG) rolling over from three swings to Gapfill, the short answer is yes.

Apple and Google have been well manipulated as a team for option expiration, so baring a reversal in these two names today on a one-day trap for the bears, their rollovers from bearish patterns suggests a likely move down into option expiration in the indices.





See the time/price squareout in Apple from yesterday's report:



Checking Apple for 2012 shows a rip from the 'natural' harmonic numbers of 360 to roughly 540.

Interestingly, an approximate 50% retracement in Apple gives $450, which ties to a test of the 50 dma.

Today is also the 6-month anniversary of the all-time high in gold. Note how the recent momentum high in (GLD) occurred on the 6-month anniversary of the primary high in GLD from last August 22. With GLD testing a Bowtie of its 50/200 dma's, is it possible that gold/GLD is carving out a low here? Further downside acceleration in GLD could see $160, so I only want to buy strength above $170 from this point.

Conclusion

The normal expectation would be a bounce following a turn down of the weeklies. If the market then accelerates through 1,354, it could see drive toward 1,300 in a New York minute.

Form Reading Section

On Monday, we sent out an alert on Universal Display (PANL) on the short side. Universal Display is accelerating from a third lower high, which often identifies powerful downside surges. Note the breakaway gap through a rising trendline that has defined the recent downside action.



A 3-day, 10-minute Universal Display chart shows yesterday's acceleration after triggering a Rule of 4 sell signal (a break of triple bottoms). Universal Display settled with what looks like a bear flag and is set to trigger a further little Rule of 4 break this morning.




A 3-day, 10-minute chart on Citrix Systems (CTXS) for three days shows the same concept of fast moves playing out from third lower highs on a shorter-term timeframe.

Note how a Late Day Snapper played out from 'unsustainable' price action (yesterday's persistent short-term decline). A relief bounce was due, but they don't make it easy. After tracing out Train Tracks just prior to the last hour, Citrix dipped to a new low.

However that new low that undercut the 10-minute Train Tracks left a small Bottoming Tail and when follow-through showed up, Citrix was magnetized to a 50% retrace of the day's range.



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