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Market's Do or Die Set-Up


No excuses not to rally.


Editor's Note: The following is a free sample of Jeff Cooper's Daily Market Report. Get a FREE 14 Day trial by clicking here!

But if this ever changin' world in which we live in
Makes ya give in and cry
Say live and let die

- Live And Let Die (Paul McCartney, performed by Guns N Roses)

In January I forecast that the low for the year should be in January. With the first quarter now behind us the idea of a January low may be confirmed early in the second quarter. That is the set up and prospect at hand as I interpret the patterns and the cycles. Remember that there are no instances of the market making new lows past the end of March in years ending in 8. Remember as well that a study of the S&P from its inception shows many significant turns in the month of March. Remember too, the analogue from 1937/1938 that I showed recently and the anniversary date of a blast off on April 1st.

For some weeks now I've offered that the stage was being set for a strong April advance, possibly an advance of 10% or more. Now, we're going to get an idea of whether cycles trump fundamentals and sentiment as the headlines and bearishness in the first quarter, particularly in March couldn't have been worse if they had been beat with the ugly stick.

From my perch, it may be a bit of a stutter step start, but there is no excuse technically for the market to avoid a rally here. It is set up. Why?

The daily chart below of the S&P shows a test of the January low, a thrust off that test and a first 1-2-3 Pullback into last Friday. First pullback after a thrust that has tested a low are good risk to reward set ups.

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In addition, the Up-Down-Up sequence in March appears to have trace out a bullish inverted head and shoulders pattern. Note how early March may define a mini left shoulder. The session closes on March 3rd and March 4th were 1331.35 and 1326.75 respectively. Monday's high on the S&P was in the middle of this level at 1328.50.

A move over 1330/1333 puts the market back in a strong position from which to rally, while recapturing 1340 could ignite a stampede.

Further study of the daily chart shows a downtrending three-point trendline for the year. This trendline was operative in turning back the market at the February high and then again a week ago today.

The S&P is poised to attack this three-point trendline which roughly coincides with the overhead 50 dma at 1337. At the same time an hourly chart of the S&P (not shown) has traced out the potential right shoulder of a head and shoulders toppy pattern at 1340. Consequently, you can see why I say that a move over 1340 that holds could see a buying riot. Moreover, because the S&P left an N/R 7 Volatility Signal on Monday there is a strong likelihood that an upside fuse will be lit within the next few days - if a rally is going to be sparked.

There are many stocks now positioned to make big upside moves if we see some back to back follow through. These names include Visa (V), MasterCard (MA), Deckers Outdoor (DECK), Affiliated Managers Group (AMG), Goldman Sachs (GS) and Google (GOOG).

While from a trading standpoint, the less overnight risk assumed has been the correct posture for the most part in the first quarter, it feels like it may be the right time to consider swing trades more aggressively now.

It should be easy to see which way things are going to go after the first hour, if not the first half hour. I would go with any directional bias shown early on.

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Agnico-Eagle Mines (AEM)

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CF Industries (CF)

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MA 10 Minute Chart

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MA Daily Chart

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No positions in stocks mentioned.

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