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In This Market, Drive the Effect


Although the market reversed from its worst start in a new year since 1932, not all buy signals are created equal.


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Goes from zero to 60 in 3.5,
Baby you got the keys,
Now shut up and drive.
Shut Up And Drive (Rihanna)

As I sd to my
friend, because I am
always talking,---John, I

sd, which was not his
name, the darkness sur-
rounds us, what
can we do against it...
I Know A Man (Robert Creeley, misspellings intentional)

America makes prodigious mistakes, America has colossal faults, but one thing cannot be denied:
America is always on the move. She may be going to Hell, of course, but at least she isn't standing still.
E. E. Cummings

On Wednesday the market carved out a climax reversal day. But it is a buy signal in a dangerous market.

The last hour whoosh to the upside on Wednesday was a virtual mirror image of Tuesday's last hour spiral.

There are many who say the culprit for Tuesday's debacle was the fear that Countrywide (CFC) was going down for the count. However, in reality, the S&P was solidly green going into the last hour or so when the plug got pulled. Ostensibly, the damage should be laid at the doorstep of the chairman of AT&T (T), who cited softness in business. So folks are going to use less toilet paper, less toothpaste, and make fewer phone calls to those using less of the prior two items is the drill, apparently. In reality, the market has been sharply headed down since the closing minutes of 2007 when a market on close program ganged up on those scurrying out to festivities.

Tuesday's late selling spree looked like another Animal House panty raid by Bluto and crew that we all became familiar with in the last hour on so many occasions in the second half of 2007. Who is the Fat Man at the hedge fund manning the levers on these last hour fire drills anyway? Is it a foreign entity? Where is the Working Group when the bulls absolutely, positively need them to be there?

Maybe they've just got good technicians and good chart readers on staff. Maybe they were just waiting for support to be tagged.

After all, as the weekly chart below shows, is it really so surprising with the most oversold condition by some measures since October 2002 (thank you, Prof. Depew), that the market would find support at well, support?

And they say the market doesn't make sense. Yesterday I mentioned the idea that a climax reversal could play out after a mid-day test on a cyclic return and measured move basis.

I also mentioned the notion that it appeared a fractal of the decline into the August 16 low was playing out just as the current decline began from the 1500 S&P level as well. And they say the market doesn't make sense.

It doesn't make a lot of sense if you're mining for cause and effect in the news and the data points. It makes no sense if you're looking for reasons, fundamental or otherwise. Sure, eventually, the economy and the market will correlate with each other but "eventually" is a long time.

I spoke with a few trading buddies after the close, who asked "But how? But why? What was the reason for the turn? What had changed?" I could only respond that our job is to shut up and trade.

As Vigo said in the movie Eastern Promises, "I just drive."

Folks with inquiring minds want to know if Wednesday's reversal was the work of the Working Group. Hey, we're never gonna know for sure. But as soon as they start calling me beforehand I'll be sure to post it on the Buzz & Banter from my new yacht, Aquasition.

In the meantime, I think we should stay on our toes.

There is an old saying that it is the close that traders take home with them. Although the S&P broke the measured move support at the 1390 close mentioned yesterday, Wednesday's close was substantially above that level.

Although the market reversed from its worst start in a new year since 1932, not all buy signals are created equal. In studying the behavior of the S&P since its inception, trade in the first quarter of a new year below the lows of December of the preceding year are inauspicious for the outlook of the overall year.

I believe there is a better than average likelihood that the bottom is in for the balance of the month and that the trend will be erratically up into the last week of the month. This will depend upon the ability of the S&P to recapture 1420 and hold it.

If so, a rally to 1450 to 1470 may play out this month. A break of 1380 now on a closing basis could indicate that current levels are only the mid-point of a move lower.

If 1470 is offset and then 1500 S&P recaptured, I believe that there is even an outside chance of a new S&P high being made in the first quarter of this year. At the same time, my work suggests that the triple bottoms traced out on the S&P if a rally develops from here will be broken before the first half is over.

Whatever the cause, just drive the effect.

Get this column along with Jeff's trading picks and setups each day in Jeff Cooper's Daily Market Report. 212-991-9357 or click below.
No positions in stocks mentioned.

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