Is the Final Top for the Year In?
With bonds and stocks falling together, caution is warranted.
Take what you have gathered from coincidence
The empty handed painter from your streets
Is drawing crazy patterns on your sheets
-- "It’s All Over Now, Baby Blue" (Bob Dylan)
I have an old saying that genuine tops and bottoms usually occur once the hook is in. Such was the case at the big October 2011 low on the undercut of the early August low.
Such was the case at the big October 2007 top on the nominal overthrow of the July high that year. Ditto the major March 2009 low which, sharp-point wise was actually a short-lived undercut of the S&P 500’s low in November 2008.
Once the hook is in, the market fish is reeled up onto the back of the boat with those who fight the new trend kicking and screaming the whole way. Trust me, I’m a kicker and a screamer from way back. The deal is the bigger the hook, the bigger the fish, the bigger the move in the opposite direction of the hook. Such was the case in all the above-mentioned turns.
Once the Street has been caught off balance, so to speak, the ensuing re-righting of the market is authoritative. This is what played out in October 2011 when one of the largest outside up months in nearly 20 years played out. That momentum bought the market time.
However, time may be up.
As I’ve been mentioning to subscribers of my Daily Market Report since February, big cycles top from late February to late March with the first week of April due to be the outside window for the cycles to exert their influence -- if indeed they were going to. As you know, early April is opposite last year’s October 4 low. Yesterday, the cycle hit, and even though Apple (AAPL) was up big, the market succumbed.
Today is April 4, and the big turn for the week, with an idealized upside target of 1427/1428, was shown in yesterday's report.However, the hook may have been set with Monday’s Paint Job new high to begin the quarter as I've warned in previous reports, and we may have come close enough for government work. Following yesterday’s action, any downside momentum targets 1384 (90 degrees down from high) and 1348 (180 degrees down from high).
Click to enlarge
It’s important to note that while a perfected kiss of 1428 would have satisfied 6 squares up from the 666 low (the same 6 square advance that defined the S&P advance from its 2002 low to its 2007 top), as we have shown for several weeks, 1421 is 90 degrees or square of April 2/3. This 90 degrees square of time and price is the exact relationship that occurred at the October 2007 top with 1576 and October 9/10 and with the March 2009 low with 666 and March 6. So caution is warranted as it would seem fitting for a major cyclical bull run to end here in the same way.
The fact that both bonds and stocks were down together points to the possible liquidation cycle that ties to 1987, 1937, 1962, and 2002. And like those years, often times liquidation turns into waterfall declines. Caution is warranted.
The fact that yesterday’s decline accelerated on the FOMC news showing that QE3 or Twist is not likely shows just how hooked up the bullish theme is to the Fed IV.
Despite the late comeback yesterday, this morning we are seeing what may turn out to be a Breakaway Gap mirroring what may be an Exhaustion Gap in Apple.
Those of you who are familiar with the Square of 9 Wheel or Spiral Chart know that moves must be measured from intraday and closing highs and lows---especially when there is a large range involved. For example yesterday’s close at 629 in Apple ties to the low weekly close in November 2008.
A downside gap today may leave an Island Top. A break below 616/617 that sees continuation suggests a move to as low as 600 this week. That would leave Weekly Train Tracks on Apple.
The strategy for the bulls here is to try for another squeeze late today for a graceful exit before the Good Friday holiday-shortened week and the employment numbers.
I would warn however, that Thursday could be a big down day even if there is a squeeze into the close today mirroring Tuesday’s squeeze. If the market stays up and grinds up after 10:30 a.m. it may indicate that there is an MOC (market on close) buy program in the wings. Be that as it may, the cycles suggest Thursday could be bloody. Last ditch support shows up around 1391 with a break of that level implying a test of last year's highs and the breakout pivot at 1371 and a test of the 50 dma at 1367.
Usually when they take the escalator up (the current ascending wedge since January), they take the elevator down, so I wouldn’t be eager to buy dips below 1400 until the 50 dma is tested -- and that could come quickly. The first test of the prior highs and the 50 dma (if it plays out that way) should elicit a snapback even if the trend has changed from up to down. That being said, the market doesn’t owe us anything.
The big picture of the Nasdaq shows the possible secular bear market outlook which suggests a vicious resumption of the bear market.
Currently key support on the daily NAZ is defined by its rising 20 dma and a trendline connecting points A and B with a short term neckline. If this confluence of important support is broken lower prices will follow.
Conclusion: There is a better than average likelihood if they break strongly from here leaving weekly reversal signal bars that the high for the year is behind us. This is the message of the cycles. It is only the cycles and not price that allow for the anticipation of trends, so keep in mind that when time is up the trend changes and when trend changes all support (and resistance on the upside) is made to be broken.
Strategy: The S&P 500 has put in two weeks on the side as W.B. Gann would say at this 1400 level. A break from this congestion should see a test of the 50 dma. If the market somehow reverses this morning’s losses and recaptures 1421, this time on the side suggests a quick spike toward 1440 to culminate the advance; however, I suspect that would end up being a Spike & Reversal pattern with a stab right back below 1421. For now, the S&P will test its 20 dma on this morning’s weakness which may see an ensuing bounce but I want to be short below 1407 and will only look to scalp long above 1410.
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