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Dramatic Turn and Breakout Setting Up


It's Misdirection Day for the markets.


Editor's Note: This is a free sample of Jeff Cooper's Daily Market Report. To receive this regularly, along with his day and swing trading setups, please click here for a free 2 week trial.

Your drug is a heartbreaker,
Say it ain't so a - woah - a -woah
-Say It Ain't So (Weezer)

Sometimes I'm so dense I amaze myself. With Monday's reversal in the S&P as it tailed off from "natural resistance" up 120 points from the low and tagging 1383 level, I should have anticipated at least a pullback comprising of two lower lows, and possibly a pullback to 1347. Why? To recap let's review the message of the Wheel of Time and Price. Recently I mentioned that 1383 vibrated off the date of the October high. Consequently, by definition, opposition or 180-degrees in time from the October high is April 9th – here we are.

Following are the 90-degree squares down from the 1575 high, or the Master Square:

1536: 90-degrees down
1497: 180-degrees down
1459: 270-degrees down
1421: 360-degrees down
1383: 450-degrees down
1347: 540-degrees down
1310: 630-degrees down
1275: 720-degrees down

If you study the levels of the S&P in conjunction with these numbers, I think you will be amazed.

So here we are at April 9th, opposition to the October high, which squares the price of 1347. If the S&P had run directly into this date and above 1400, another bear market rally may have come and gone. However, pulling back into this key pivot at a price that is 540-degrees below the all time high sets up a potentially dramatic turn. In a nutshell, today or Friday sets up as a major pivot. Moreover, a look at a weekly chart of the S&P shows that the mid-point of last week's large range outside up bar is 1347. Last week's low was 1312.80, and the high 1380.90, giving approximately 1347 mid-point.

In addition, Thursday the week before options expiration is also what I call a Misdirection Day. The option arbs will often attempt to suck premium out of the market in a head fake prior to the genuine directional bias for the coming week. Sometimes that misdirection lasts the entire Thursday, but often the misdirection move is over in the first few hours of trading on the Thursday the week before options expiration.

Conclusion: A daily chart of the S&P shows triple tops just below 1400.

My instinct tells me that the index is pulling back the rubber band for an assault of that level. You seldom see quadruple tops – the fourth attempt typically sees follow-through, hence the term "Rule of 4 Breakout." The duration and strength of such a breakout, if and when it comes, and the behavior at 1420, if and when it's hit, will tell us much about the month of May. However, the triple tops beckon. I believe this first multi-day pullback should see these triple tops at 1390/1400 level magnetize the S&P higher.

Strategy: I would look for a first hour low. If the index plunges and tests as low as its 50 DMA at 1342, I would expect a bullish resolution to quickly regain 1347.

I would exercise caution until 1362 is recaptured. If 1370 is regained and we get a strong Friday close on the important weekly close, it sets up the breakout I am anticipating.

Finally, the usual suspects, such as Apple (AAPL) and Research in Motion (RIMM) set up nicely and may make dramatic turns while some bottle rockets, such as Lindsay (LNN), Valmont (VMI), and Cleveland-Cliffs (CLF) are poised to pull back. Consequently, there could be a substantial amount of volatility if rotation rips the tape on Thursday.

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Position in AAPL and RIMM.

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