The Cycles of Time
Every market has its own personality, and while the patterns do not necessarily repeat, they often rhyme.
The tolling of the iron bell
Calls the faithfull to their knees
To hear the softly spoken magic spells
-Time (Pink Floyd)
In keeping with the Principle of Reflexivity, when a big wheel of time turns such as the Quarterly and Monthly, the market usually gives a knee-jerk reaction back in the opposite direction.
The Quarterly Swing Chart turned down on trade below the second quarter's low of 1416.35 S&P on August 15. Although, in keeping with the behavior of bull markets, the index found a low the next day. That low was 45 S&P points lower.
So, the prevailing question is whether this is a snapback retracement reflex rally or a bullish thrust off the turndown of a big wheel of time.
If it's a bear market, the key resistance level will be the next lower wheel of time or where the Monthly Swing Chart turned down. This occurred on July 26 on a break of the June lows of 1484.20. This was the level of double bottoms in June and now becomes the monthly swing pivot. The market often does an excellent job of making itself look good in bear market rallies, the old saw being that the sharpest rallies are many times those in bear markets, albeit they are short lived.
In both 1929 and 1987 there were snapback rallies that lasted approximately seven days before rolling over into the most devastating part of the decline. In 1987, that reflex rally peal coincided with a lunar eclipse. Tuesday morning there is a lunar eclipse. W. D. Gann devoted a book which was veiled in a love story to these most powerful of astronomic occurrences. Of course we keep time by the cycles of the sun and the moon, the waxing and waning of the moon being more or less a month. Will the S&P be able to stretch its rally out and turn up its monthly chart on trade above its August high of 1503.90 or will the Monthly Swing Pivot of 1484.20 define resistance?
The key 50 dma of the S&P lies smack between these two levels at 1494. So, you can see that the index is facing formidable resistance and has its job cut out if it is going to convert the trend.
Additionally, Monday is the seventh day up from the August 16 reversal low. As you know seven is often times the number of change and defines a time to look for a turning point. At the very least, the expectation would be for the S&P to begin a retracement to a test of the low even in the most bullish of circumstances. I believe betting on the notion of a V bottom given the recent prevailing fragility of sentiment and the angle of attack to the downside is betting the short straw.
The behavior on trade back below the Weekly Swing Pivot, where the weekly swing chart on the S&P turned up at 1466.30, will be the first critical test for the market.
Every market has its own personality, and while the patterns do not necessarily repeat, they often rhyme. It is interesting that last week's rally phase has spiked up opposition to the February 22 peak. It is interesting that the July 19 closing S&P high is 90 degrees in time from the October 19 Black Monday crash in 1987.
It is interesting that one of the analogues we have been looking at, the 1990 high, saw the DJIA find high precisely at the round number of 3,000 in mid-July, just as the DJIA found a high at the round number of 14,000 this July.
Additionally, the market continues to play out very much according to the road maps of 1957 and the second half of 1907 and 1937. Perhaps the Bernanke Bid is sufficient reason for stocks to diverge from the patterns of past panics, but I'll have to see it to believe it. If the pattern is going to diverge, the nature of the next pullback, which should start no later that Tuesday, should tell the tale.
Before getting too aggressive on the long side, I would be more risk adverse until we see how the next pullback shapes up.
So far the road map for a panic beginning in July is playing out. The market would like to trick us into thinking otherwise at the most inopportune of times.
Is this road map happenstance and coincidence? Does the market actually have its own internal clock?
Eternal return is a concept which offers that the universe has been recurring and will continue to recur in a similar form an unfathomable number of times. The concept has its roots in ancient Egypt, which is interesting because the Square of 9 Chart is basically the Great Pyramid from a bird's eye view.
The philosophical concept of eternal recurrence was addressed by Arthur Schopenhauer where time is seen as not linear but cyclical. The concept of cyclical patterns is prominent in Buddhism where a wheel of time concept manifests the idea of an endless cycle of existence and knowledge.
The markets represent such an endless cycle of birth, life and death, from which we seek liberation through knowledge. What is the difference between knowledge and wisdom? Knowledge is knowing something, wisdom is doing it.
The wheel will whirl. Price will fluctuate.
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