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The Market's Crossroads


Because the market is at a pivotal big picture juncture, any shorter tern inflection points become critical.


I went down to the crossroads, fell down on my knees.
Asked the lord above for mercy, save me if you please.

--Crossroads (Robert Johnson)

In the Medusa myth relayed by the Roman poet Ovid, Medusa was originally a beautiful nymph, "the jealous aspiration of many suitors," but when she was raped by Poseidon, in Athena's temple, the Goddess transformed her beautiful hair to serpents and she made her face so terrible to behold that the mere sight of it turned men to stone.

The market is at a crossroads. It is at a pivotal juncture.

I began to flesh out some of the bones to that long view in a column entitled A Pivotal Set-Up Worth Watching. I will add more skin to that skeleton over the coming week. But, today let's drill down and look at the immediate picture.

It is an old trading saw that failed moves lead to fast moves. Such was the case on both Monday and Tuesday when early triple digit DJIA gains were mauled to losses. It's as if someone was jacking the market up in the morning to stave off selling and protect the June lows. Could it be the Plunge Protection Team rigging Humpty Dumpty to the 1490-1500 Wall in order to prevent a fall below the May low and in so doing avoid a second outside down month this year? February was an outside down month. Remember that the second mouse gets the cheese.

Speaking of the second mouse getting the cheese: the four year cycle low is a quite reliable market periodicity. It is one reason why many traders, including myself, were looking for a fourth quarter trough low to play out in 2006.

So I'm wondering, last fall, did a new Treasury Secretary bleach a black swan called Amaranth?

The New York Post's John Crudele penned an article in October 2006 that dips a toe into the Plunge Protection Team's pool.

Whatever the catalysts for the early spikes and the late day breaks on Monday and Tuesday, the price action underscores distribution: someone is hitting the bids on the spikes.

Because the market is at a pivotal big picture juncture, any shorter tern inflection points become critical.

1) A ten minute chart beginning a week ago Monday shows a Power Surge signal (three lower highs).

2) 90 degrees down from the 1540 S&P June high is 1501/1502. The index has closed below this level for two consecutive days

3) The S&P is also vulnerable having closed below its 50 day moving average for three consecutive days.

4) The S&P is testing the the low for June of 1490.70 scored on June 7th.

5) 180 degrees down from 1540 is 1464 which ties in with this year's February 22nd peak. 270 degrees up from the 1364 March low is 1478. The low for May was 1476.70 made on May 1st. An outside down month will play out on any trade below 1476.70 in the month of June.

As you can see from the above levels, the February high 'proves; and 'vibrates' off the June high. As W.D. Gann said, "God geometrizes."

Moreover, the S&P low last year (in June) was 1219/1220. A full square of 360 degrees up is 1364, this year's low (in March).

Interestingly, as mentioned in It's A Mad Mad, Mad, Mad Market, a move below the June low would potentially trace out a second Big W, in a fractal of the pattern at the March low.

Based on the above, the levels to watch for are 1478ish and 1464ish..

A lower low today will be make a seventh lower consecutive low on the S&P. This is rare as hen's teeth and indicates serious liquidation. More serious when you consider that it is occurring just before the end of the quarter. It may mean some funds are going out of business for quarter end, accounting for the 'window undressing.'

Wednesday should either be a big downer or a reversal day--maybe both. An early move lower - especially one that turns the monthly chart down - could theoretically set up a reversal in front of FOMC doves to be released on tomorrow. The first hour today will be key. Will the Plunge Protection team suit up?

Be that as it may, whatever the market does or does not do into the July 4th holiday, watch for signs of spreading panic in world financial markets that I have been anticipating.

Recently Minyan Jeff Saut mentioned that the snake that bites is the one you don't see.
In this perfect storm of a Medusa Market I see unfolding, I find it interesting that the Yen carry Trade is on no one's lips--no one that is, except for Professor Sedacca. On Monday on the Buzz and Banter, he showed a picture that may launch a thousand derivatives.

So I'm wondering, is the CDO debacle actually the tip of a Yen Carry Trade iceberg?

Brother, can you spare a deck chair?

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No positions in stocks mentioned.

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