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Will The Market See The Light?


As anticipated, and hopefully for Hoofy, the rally into the weekend appears to be on course.


Editor's note: This is a free peek at Jeff Cooper's Daily Market Report. To receive this report along with Jeff's daily swing and day trading setups, sign up here for a FREE 14 day trial.

That's me in the corner, that's me in the spotlight...
Losing my religion.
Trying to keep up with you.
And I don't know if I can do it.

- Losing My Religion (R.E.M.)

A brilliant observer of things, W. D. Gann's sheer genius led him to comment that "God geometrizes."

If the geometrical notion of "as above, so below" is true, then the key reversal at the 1576 S&P high on October 11 may be a mirror image of Tuesday's reversal at 1420 S&P. This is the level I have identified for weeks now as the pivot of the year.

Simply put, 1420-ish is 360 degrees down from the 1576 high on the Square of Nine calculator. The Square of Nine Calculator is simply a way of measuring price movements on a square root basis as opposed to a simple linear basis.

The straight line sometimes speaks with a forked tongue – otherwise everyone with a ruler would be executing trades from their yacht.

If intraday rapidity, accelerated volatility and ferocious price swings are the hallmark of turning points then Tuesday's whipsaw and tag of 1420 S&P underscores the significance of the level in the same way that the outside day down from 1576 called the top. The problem is not all turns are created equal: it remains to be seen how much traction the 1420 level will have.

Yesterday I said that a solid down open could lead to a tradable low. On the heels of Monday's selling, Tuesday's opening strength was suspicious. Tuesday's turbulent trading was emblematic of how you can be right and still be caught in the switches, of how you can be right and still dead wrong.

Yesterday I stated that I thought a down-up-down sequence could carve out a tradable low. Instead an up-down-up sequence put in a Long Tail Day.

Answer me this – is there anyone in Cape Town who doesn't feel like they have been caught in a speed trap and that Mr. Market has got a radar gun out with your own personal DNA keyed to its GPS? Despite more than a 10% S&P decline in five weeks, no matter how much religion you may have had about this rather quick slide to 1420 if you were trading individual stocks and taking positions home overnight, the zigs and zags would have stopped you out. And if your conviction was such that you didn't adhere to protective stops or trailing stops then your gains are dirty money. Why? Because the bad habits learned from avoiding stops will dwarf any gains made in the long run.

As anticipated, and hopefully for Hoofy, the rally into the weekend appears to be on course. But nothing has been playing out according to Hoyle – nothing has been playing out "on course" lately. It's been a kaleidoscope of price swings and even when you are dead right it feels like pot luck.

The larger question to me seems to be that with so many looking to buy the dips and thinking the absolute worst is over that it smells like the perfect ingredient for a collapsing bear market for a minimum of six months counting from the October high.

Despite the turnaround on Tuesday, stocks remain in a liquidating, dangerous mode. Remember how quickly the stampede from Monday a week ago turned tail. That low near the mid 1450's on the S&P now carves out initial resistance. As far as strategy, I would look to trade with the shorts into Friday's close prior to the next plunge to start next week. That will probably coincide with something big being uncovered and someone big owning up and going under.

Critical mass was reached at 1420 on Tuesday and a break of Tuesday's low now triggers a substantial number of technical dominoes laid out in this space.

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No positions in stocks mentioned.

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