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S&P Watch: The Long-Awaited Correction Could Be Now


When the market doesn't do what's expected, it pays to listen.

Editor's Note: The following is a free edition of Jeff Cooper's Daily Market Report. For a 2-week trial FREE trial, click here.

Secrets stolen from deep inside
The drum beats out of time
"Time After Time," (Cyndi Lauper)

"Modern usage has made the term speculator a synonym for gambler and plunger. Actually the word comes from the Latin speculari, which means to spy out and observe. I have defined a speculator as a man who observes the future and acts before it occurs. To be able to do this successfully -- and it is an ability of priceless value in all human affairs -- 3 things are necessary: First, one must get the facts of a situation or problem. Second, one must form a judgment as to what those facts portend. Third, one must act in time, before it is too late. I have heard many men talk intelligently--even brilliantly--about something only to see them proven powerless when it comes to acting on what they believe. If action is delayed until the need is apparent to everyone, it will be too late. To be evident to all, a danger must be on top of us and out of hand."

-My Own Story, Bernard Baruch

"The men who are responsible for bringing about these fictitious prices are the same men who are directly responsible for what is happening in the stock market today. It is unfortunate for the general public when such a condition arises that real sound investment issues have to suffer along with the readjustment of issues of least merit."
- Jesse Livermore in the New York Times during the 1929 crash.

As a young teenage speculator, Jesse Livermore came to 2 conclusions about winning and losing in the market:

1. He won when all the factors were in his favor, when he was patient and waited for the ducks to line up in a row.

2. No one could or should trade the market all the time. There were times when a trader should be out of the market, in cash, waiting.

Both conclusions deal with patience. Patience implies time. Time is the mother of observation.

My father was a speculator. He was a tape reader. I learned from him at an early age that he was interested only in the change in price, not the reason for the change. He didn't waste time trying to rationalize the action of a stock. I learned there could be a million reasons why the price had changed. These reasons would be revealed later, after the fact. By the time these "reasons" were understood, the change would already be an historical event, and it would be too late to capitalize on it.

There were 2 things I learned relatively early in my career as a trader (but not as early as I should have):

1. I observed that the verdict of the tape very rarely matched what the brokers or the customers had predicted. Eventually I came to believe that the market has its own internal clock and that the tape has a life of its own.

2. The majority of participants in the markets acted randomly and/or relied on news to drive their decisions. They had no plan, no consistent approach to the market. As such they are more prone to allowing their emotions to rule than those without a consistent approach. We are all subject to the sway of our emotions but without a consistent approach, the emotional factor hampers success.

For me, the most consistent approach marries time and price: The Swing Charts -- or, as W.D. Gann called them, the Trendline -- and the harmonics played out on the Square of 9 Chart, or the Wheel of Time and Price.

Let's take a look backwards to see where we are now with these 2 approaches. As shown in this report at the time, the end of the first week of May "squares" the price of 930 S&P. In other words, the price of 930 is 90 degrees from 930. May 6 and May 7 were also 60 degrees in time from the March 6 low, while the March low was 60 degrees in time from the January 4 peak.

Click to enlarge

Consequently, the market had traced out a 60-day high-to-low-to-high pattern.
No positions in stocks mentioned.

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