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# Playing Dice With the Market

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## Maybe these are signs in the Street that say where we're going. Maybe they're just being their own worst enemies, strangers in a strange land.

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Eight miles high, and when you touch down
You'll find that it's stranger than known
Signs in the street that say where you're going
Are somewhere, just being their own

--Eight Miles High
(The Byrds)

"God does not play dice with the universe"
--Albert Einstein

Legendary market guru W. D. Gann believed that all important highs and lows in the market were related to each other.

After years of studying the markets, Gann concluded that the financial markets are driven by the "Law of Vibration."

Gann said that 360 degrees of a circle and the digits 1 through 9 were the basis of all mathematics and stated that when it comes to the market, "God geometrizes." Hence, the name for the Square of Nine Chart – where the number nine completes the first square of numbers.

Essentially the Square of Nine Chart is a way to measure a stock (or an index) progression on a square root function rather than on a linear basis.

A look at the Square of Nine Chart (see it here) shows that all of the corner numbers are either squares such as 7 squared equals 49 or half squares such as 7.5 squared equals 56.25, 57 being a corner number.

This certainly may sound esoteric and obscure, but W. D. Gann for one example predicted the stock market crash of 1929 to the day.

One example of the market's internal clock and its innate natural order or symmetry being manifested is that the all-time intraday high of 1552 S&P resonates or vibrates off of August 25, 1987, the important pre-crash high of that year.

One more example of how time and price are harmonics of each other is the price of the October 2002 low at 768 S&P resonating or vibrating off the date of the post 1929 crash low in early July 1932.

In the first example the anniversary of the date of a significant high is a harmonic of the price of a significant high. In the second example, the anniversary of a historic low is a harmonic off an important price low in 2002 after a severe decline.

The important thing to remember is that although market turning points may vibrate or connect harmonically to a prior turning point, not all vibrations are good vibrations. In other words not all turning points are created equal – a symmetrical relationship or vibration doesn't ensure a turn. Price is the point of the sword and it is crucial to rely upon price action to respect and confirm a time/price relationship.

Moreover, in my experience the more clusters of relationships that exist at a particular time and price, the better the likelihood of a turning point.

Why mention this now? A few reasons:

• On Friday the S&P was 1527 calendar days from where this unrelenting, staircase advance began – March 12, 2003. Hence a possible time and price square-out as the S&P tagged its all-time closing high at 1527 on Monday.

• The last important Swing low on the S&P occurred at 1219 on June 14, 2006. Although the Square of Nine Chart below doesn't count as high as my own physical Square of Nine Wheel, the fact is that this year's mini-crash into March 14th found low at 1364 which is precisely 360 degrees or one cycle of 360 degrees in price up from the June 14th 1219 S&P low. The next cycle of 360 degrees up from 1364 is 1516 S&P. If you look opposite the price of 1219, 1364 and 1516 you will see that these prices vibrate off May 20th. The S&P was magnetized to above its all-time closing high of 1527 on Monday, but sold-off sharply in the last hour to close at 1525.10. Close but no cigar for a new record close. This is less than one percent from the afore mentioned 1516 level.

Click image to enlarge

• Combined with the calendar day count and the above mentioned potential time/price harmonics, any loss of momentum from here should signal a pullback. Why bother trying to identify a pullback in such a persistently and obviously strongly trending market? There are a few reasons:

• Large reactions start with small reactions. Large declines start with one small missed step.

• In an environment where there are many professional shorts who are shell-shocked, and many bulls who are scared of how easy it has been to make money, a first pullback in more than two months of a straight line move could be violent - one where you would want to attempt to protect your hard earned profits and conversely to potentially capitalize on the short side.

• The Weekly Swing Chart is stretched on all historical measures – even blow-offs – failing to turndown for eight weeks now. We are in the ninth week up on the Weekly Swing Chart. The key level to watch is last week's low at 1498.35. Any trade of one tick below that level will turn the Weekly Swing Chart down for the first time in eight weeks. Such a move if it occurs this week would once again test the key 20 DMA (Day Moving Average) and likely find support.

Monday may have represented the last of the option expiration squeeze. Be that as it may the S&P had a date with destiny in so far as it was magnetized to its all-time closing high. In the clarity of hindsight, once the S&P had offset the February/March mini crash, there was a substantial likelihood that the S&P would tag 1527. Something I did not think would occur in a straight line. But such is the two-fold pull of options expiration turbo charged by easy money sloshing around.

It is worth noting that the SPY, after scoring a new seven-year high, actually closed down on the day on substantial volume of 173 million shares.

London also sold-off sharply in the last half hour on Monday. Does someone know something about programs in the wings?

Additionally, on the heels of more attempts by Chinese officials to reign in speculation, their market was down 3% for all of eleven minutes before rebounding to close up 1% on Monday! Talk about hyperventilating. Eleven minutes, hmmmm – that's symbolic, it's quite an intriguing book by Paulo Coelho. It will be interesting to see how the Chinese market acts on Tuesday in light of the S&P milestone and how it acts under the scrutiny of the U.S. and China going eyeball-to-eyeball over currency and trade issues beginning Tuesday. Is the FXI ETF a double top or ready to explode again? The chart has traced out a volatility set-up as Tuesday is the seventh day from a large range extension and has basically been trading inside in a narrow range for the last six days.

Signs in the Street? Despite Monday's "strength," the DJIA actually closed down on the day. Ditto, Goldman Sachs (GS), the King, down over one dollar. Ditto G-Spot, Google (GOOG), which got excited but lost nearly a nine point gain to settle virtually flat on the session.

Maybe these are signs in the Street that say where we're going. Maybe they're just being their own worst enemies, strangers in a strange land.

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