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Market Puts On Its Spikes


Look for a swift and scary shakedown as a time to buy.

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

Workin on mystery goin wherever it leads
Running down a dream

-Running Down A Dream (Tom Petty)

Let's take a look at some charts. Checking the high (the weekly turn up) in the first week of November, just before the crash into mid-November, there is a high on November 4th of 1007.50 SP, the low that day being 971.29.

This is interesting for a few reasons:

1. Longtime readers will recall the time and price square out in the first week of January at 943. This was an important square out because it was on the master square (1576, the all time high, and 768, the 2002 low). The geometry of that square out proved itself sending the SP down approximately 280 points in 60 days.

2. Now that the S&P is attempting to breakout over the January high and the opening range of the year, let's take a look back and see what levels it was at a parallel 60 days prior to the first week of January. The first week of November shows a high of 1007.50 and a low of 971.27 on November 4.

Since market moves often play out in 90-degree increments of price, should the SP follow through from here, the next 90 degrees up in price from 943 is 973 while 180 degrees up in price is 1006. These coincide with the high and low of the range from November 4th, 60 days prior to the January peak. The March low was 60 days from the Jan. high while the May 7th trading peak was 60 days from the March low.

I have offered the possibility of a 'bubble and bust" scenario recently, with the first window of the turning point being a spike into the week of June 6. After yesterday's thrust, momentum considerations would suggest allowing for the possibility of a 2 to 3 day spike if we see follow through above the 943 January high.

Now, checking a daily chart of the SP for 2009, we see a gap (yesterday) over the January high and the May test of that high. As long as the index holds that gap and the breakout pivot, the market is in strong position However, note the live angle at points C in May and point D which would coincide with a tag of approximately 973. I would be a buyer of the first shakeout down to the prior short term tops and breakout near 926-920 SP.

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No positions in stocks mentioned.

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