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Market Reaching Point of Recognition


Anger seethes beneath the surface of Main Street, Wall Street.

Editor's Note: This is a free publishing of Jeff Cooper's Daily Market Report. To receive a 14 day FREE Trial of Jeff's insights twice daily, click here.

"The ceiling was that of a cellar, so heavy and low that people stooped when crossing the room, as if the weight of the vaulting rested on their shoulders."

-Atlas Shrugged, Ayn Rand (the beginning of the chapter, The Top and the Bottom

We must dare to think about unthinkable things because when things become unthinkable thinking stops and action becomes mindless.
-J. William Fulbright, U.S. Senator

Well you may be a lover but you ain't no dancer
-Helter Skelter (The Beatles)

In the book Atlas Shrugged by Ayn Rand, Mr. Thompson, the head of state, is set to address the nation regarding its dire economic conditions. But before he begins to speak, he is preempted, cut off the air by a motor of incalculable power. John Galt addressed the nation instead. Galt informs citizens that the men of the mind are on strike, that they require freedom of thought and action, and that they refuse to work under the dictatorship in power.

The thinkers won't return, Galt says, until human society recognizes an individual's right to live his own life. Only when the moral code of self-sacrifice is rejected will the thinkers be free to create, and only then will they return. The government rulers are desperate. Frantically, they seek John Galt. They want him to become economic dictator of the country so the men of the mind will come back and save the government, but Galt refuses.

Consequently, the government both fears and hates Galt. The government takes Galt into custody and attempts to convince him to take charge of the economy. He refuses. They torture him, yet still he refuses. In the end, strikers come to his rescue. The State Science Institute where Galt is held captive is assaulted and he is released. Shortly after, the final collapse of the looters' regime occurs, and the men of the mind are free to return to the world.

Sometimes life imitates art. One has to wonder, at the end of this path will there be a rebel call by Bubba Brigades to boycott mortgages? The country has watched as the American dream has been plunged into a nightmare.

To non-market participants it must have seemed as if the country was being defeated in a war that it was not told was ongoing. We are at a point of recognition; a juncture recognition where the last battle of this economic war may be about over if the market collapses further because the public may decide that paying taxes is out of the question.

After all, that is what is at the heart and soul of any government's survival. It is no coincidence that one of President Bush's last acts was to create a 20,000 militia for domestic disturbances. Forget about a mortgage boycott, if a tax revolt erupts we will have martial law sooner than later. Some of the cycles I study, which I will go into for Monday's report, indicate that the current period should be the toughest for this country since the Revolutionary War and 1789 when George Washington was sworn in.

The anger being generated under the surface is growing on Main Street and Wall Street awaits more than eloquent or not so eloquent oratory. The market is at juncture recognition 50% down from its high as it tests the Train Tracks Reversal Signal from November.

As hinted at yesterday it was a Turnaround Tuesday, and all of yesterday's heavy rusty red metal decline was offset with green tracks. Train Tracks Tuesday was a fractal of the Train Tracks three months ago. Interestingly, the pattern is an analog to the July 2002 waterfall capitulation low that was tested/undercut 3 months later in October that year. Both 'tests' squared the waterfall plunges or occurred 90 degrees of the calendar later.

Last week I was looking for a low to play out after expiration but expected Monday to be a back and fill day with 'clarity showing up on Tuesday on any sign of momentum'. Of course getting your head around this market is like trying to grab a snake by the ears.

Monday tested my resolve and looked like a breakdown while an idealized scenario for a low would have been a down open and lower low on Tuesday that saw a reversal. Maybe that's why stocks kept grinding higher after the 'Jacknife Candles' and the second opening range breakout (ORB) looks like the failure of the market to extend lower Tuesday morning caught Boo by the short and curlies.

Ideally, the market would have made a lower low on Tuesday morning to better hone the idea of a reversal day and Train Tracks, but the market has many tricks up its sleeve and can do anything at anytime--and often does. Idealism is often a reach beyond a grasp for Hoofy and Boo and you and me.

Conclusion: The cycles I have been looking for to carry the market up into early March appear to have hit with the banks and Bernanke laying the train tracks. Now we need another upside momentum day to see if this locomotive has any steam in the engine.
However, the flight from the gold fear trade and the action in many of the usual suspects including Baidu (BIDU), Research in Motion (RIMM) and Goldman Sachs (GS) suggest continuation. Initial resistance looks like 785 S&P.

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No positions in stocks mentioned.

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