Stage Set For April Rally
Spring season marks inflection point.
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Into the blue again after the money's gone
Once in a lifetime water flowing underground
You may ask yourself
How do I work this?
- Once In A Lifetime (Talking Heads)
Nobody can catch all the fluctuations.
- Edwin LeFevre
I have mentioned before that in studying the S&P going back to its inception in the 1940's, one can see that many cycle bottoms have occurred in March.
This has been particularly true since 2000. March 2000 was the peak of the bull market. March 2001 was a turning point that saw the S&P rally from 1080 to 1315. March 2002 was a peak prior to a waterfall decline into July 2002. March 2003 was the beginning of a 5-year-plus advance, the first leg of which ended prior to a consolidation in March 2004. March 2007 marked the bottom of a quick, sharp, 100-point S&P multi-week shakeout prior to the beginning of the blowoff into July 2007.
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W.D. Gann placed a lot of emphasis on the need to find the zero point, or the beginning point, in measuring time and price. In Gann theory, the beginning of spring and the Spring Equinox on March 21 mark an important inflection point. It appears that last week marked an important test of the January low.
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At the January lows, I stated that my cycle work suggested that January would be the low for the year. Although those intra-day lows were violated this past Monday, the S&P has not scored a closing low below the January intra-day lows. Consequently, this past week's large range outside week up with a close at / near the highs of the week suggests a successful test has occurred.
W.D. Gann also liked to say that the tendency of the market is to "put in some time on the side." In other words, after cyclical tops or bottoms it is common to see the market consolidate in a period of accumulation or distribution before trending in earnest.
Earlier this month I showed charts comparing the pattern of the 1987 waterfall decline to this year's waterfall. I offered that if a similar fractal were to play out currently, it would suggest that the S&P would see a new low close six to seven weeks from the January 22nd / 23rd close. That is precisely what has occurred.
Last week's large range outside up week in the S&P is in fact the first outside up reversal week since the week ending November 30th, 2007. In tracing out three higher weekly highs, that upside reversal week in November turned the three week chart back up. That defined a high on the week ending December 14, 2007. That high at 1523 looks like a right shoulder of the bull market. The low of that week at 1467 should be serious resistance. It is interesting that the 200 DMA is in that vicinity, currently at 1456.
In last Monday's column I offered that, given the daily zigs and zags, I thought it would be not only fair to say but discreet as a trader to wait for a confirmation to occur on a weekly basis before getting too confident about establishing anything other than long side rentals.
On Monday morning on the Buzz and Banter prior to the open, I stated that my instincts told me that Monday morning would be the low for the week. It was not pretty, but in the end, that's how the week played out, with the S&P closing at / near the high of the session, and importantly near the levels of where the Weekly Swing Chart turned up.
The behavior in closing near the high of the week, after turning the weekly chart up on Wednesday morning, suggests Wednesday's late sell-off was simply a knee-jerk reaction in keeping with the Principle of Reflexivity when a big Wheel of Time turns.
The bullish behavior and constructive pattern indicate follow-through. The S&P is poised to attack and convert its overhead 50 DMA now at 1345. Because the S&P was rejected by its overhead 50 DMA in late February, it will be important to see if the second mouse gets the cheese – in other words, if the second attempt is successful.
With Wall Street and the Federal Reserve pulling out all the stops, it looks like a breakout over the 50 DMA will be successful. With the Street poised to buy pullbacks, the S&P may plow quickly through its 50 DMA if no meaningful pullbacks occur.
Subsequent to a strong session, a strong up opening has been a place to take profits, and even a place to sell short of late. On Monday, a strong up open may be a place to look to lock in some profits as the market is still subject to another shakeout or liquidation; especially if many hedge funds are going out of business before quarter end. However, I would warn against becoming too aggressive on the short side: with many poised to buy pullbacks, if the market doesn't come in we could see a runaway upside move. Consequently, if a first hour high on Monday doesn't see a lower low, and the market tone remains firm throughout the session after the first hour, I would not be surprised to see a market on close buy program.
As mentioned last week, my work indicates a 10% or more advance in April. Last week's outside up week seems to have set the stage for such a rally, potential whipsaws and shakeouts before quarter end not withstanding.
(Original lyrics by Freddy Mercury of Queen)
Is this the real trend?
Is this just fantasy?
Caught in a credit crunch
No escape from volatility
Open to risk
Looking for probabilities
I'm just a trader, I need no buy and hold
Because it's easy come, easy go
Little high, little low
Anyway the wind blows doesn't really matter to me, to me.
Hoofy, just nailed a trade
Stalked a pattern in my head
Took the set-up made some bread
Whipsaw, follow through had just begun
But now a programs gone and thrown it all away
Didn't mean to make Bear cry
If the Fed's not back again this time tomorrow
Carry trade, carry trade as if the PPT doesn't really matter.
It's too late, the dollar's done
Sends shivers down the bonds
M-3's ripping all the time
Goodbye price stability
Asset inflation's gonna leave us all behind
Greenie, ooo, what's with those ARM's
I'd wish I'd gone to Minyanville, before.
I see a little silhouetto of a bull
Head and Shoulders, Cup and Handle, will you do the Fandango?
Cycles and stochastic very very frightening to me
Speculation, fluctuation, mean reversion,
Time and Price, Price and Time, Ganno, Magnifico
I'm just a semi nobody loves me
He's just a dot com from a poor family
Spare the technologies from their indignity
Apple (AAPL)! no we will not let you go---let it go.
Google (GOOG)! we will not let you go----let it go.
Bullion and crude! no we will not let them go.
We will not let techs go, let retail go
Never let banks go, let them go
Never let them go ----
Oh, mama mia, mama mia real estate is slow
A CDO has a devil put aside for me, for me, for me
So you think you can stop me out and spit in my eye?
So you think you can tell me a story and leave me to die?
Oh baby, can't get a margin call this way baby
Just gotta get back---just gotta get back in the game.
Psychology's what matters
Anyone can see
Speculation's observation, price action's all that matters
Anyway the wind blows.
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