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Year End Rally or Year End Plunge?


The action of the stock market into the end of the month could determine the direction into year end.

Editor's Note: The following is a free edition of Jeff Cooper's Daily Market Report. For a two-week FREE trial of his daily commentary and nightly day and swing trading picks, click here.

"And another one gone and another one gone
Another one bites the dust.
-- "Another One Bites the Dust" (Queen)

Turnaround Tuesday saw the S&P score a triple top breakout (above the 3 swing highs from August 31, September 16, and October 14. The large range outside up day looked convincing with an authoritative close over the significant 1220 resistance and the 1223 mid-point for the year.

However, as the 10-minute chart of the SPY below shows, the market skidded when Tuesday's late high volume candles were smashed. An ORB (opening range breakdown, a break below or above the first 30 minutes range) did a good job of identifying yesterday's give up.

Note the typos on chart: Tuesday was an outside up day. Trade below Tuesday's low will trigger a bearish reversal of a reversal.

In just 12 trading days the market moved from below support to a close above resistance. Was Tuesday a Fakeout/Breakout? As above, so below?

Today will be the 14th trading day from the October 3 break of support. The 14th trading day is often times a pivotal turning point.

The bulls tried to get things going again on Wednesday, but with one stock-market general after another getting shot, the troops are beginning to cut and run. After IBM (IBM) got spanked, Apple (AAPL) had a rare miss after Tuesday's close and gapped down, leaving a bearish Island Gap from our 426 Squareout level.

It's worth taking another look at the 2 Square of 9 Charts and price charts I showed on AAPL in Tuesday's morning report as the history of gaps down in AAPL for more than a decade suggest an average decline to around 320 over the next few months. This ties to the last swing low, the June low which is the Quarterly Swing Chart low in AAPL. The message of the Island Top from meaningful resistance is that the Quarterly Swing Chart should turn down.

Click to enlarge

Click to enlarge

Note that the monthly chart shows recent highs coincided with a rising trendline from 2007. If AAPL is poised to decline to test its last swing low near 320, in so doing it will snap a monthly rising trendline, leaving a Reversal of a Reversal month. The implication of that price action on the monthly chart is that AAPL may have put in a high for some time to come. AAPL must hold its 400 strike or quickly begin what I see as a move to 320. It's pay me now or pay me later. (Also read Apple's Miss Suggests a Significant Top.)

The other member of the A-Team, Amazon (AMZN), was under heavy liquidation Wednesday as it broke under Tuesday's potentially constructive 180/'tail' setup. Snapping Tuesday's tail put AMZN in a Tail Spin as the stock declined all the way to its 20-day moving average, testing prior swing highs from July. Another break with authority through the 230 level as occurred in September could see AMZN plunge again toward 200 and its 200 dma.

After the close, another one bit the dust as Wynn Resorts (WYNN) declined sharply after reporting earnings. Apparently WYNN can't bank on Macau any more than the global economy can bank on China.
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No positions in stocks mentioned.

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