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Boo's Back Against the Wall

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He's a little record machine this Hoofy. And, although Boo's back is up against a wall - he's seen smoke coming out of Hoofy's ears before.

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I get up, and nothing gets me down
You got it tough. I've seen the toughest around.
And I know, baby, just how you feel.
You've got to roll with the punches to get to what's real
Oh can't you see me standing here,
I've got my back against the record machine.


--Jump, Edward Van Halen & David Lee Roth



On Tuesday night the S&P went out with a classic Buy Signal: a 1-2-3, 180 Pullback. Pullbacks in strongly trending markets (or stocks) typically last no more then two to three days; hence, the name of my set-up. The pattern is traced out with three consecutive lower lows or two lower lows and an inside day.

In addition, the S&P left a 180 Buy Set-up on Tuesday's close. Just as it sounds, a 180 is scored when a market closed at/near its low for the day and then on the following session closes at/near its high for the day. This signal can only be generated when the stock or market closes above both its 50 & 10 DMA (Day Moving Averages).


The daily chart of the S&P shows it has now carved out a 3-Point Rising Trendline, a break below this trendline will issue an Interim Angular Rule of 4 Sell Signal. Interestingly, such a signal would coincide with a failure at the 20 DMA.

This was the position of the S&P at Tuesday's close. Although the index entered Wednesday like a lamb, it quickly morphed into a wolf. An hourly chart of the S&P below shows there was natural resistance at 1490. However once that level was relinquished, it was apparent the index would make a beeline for 1498 – the prior high. In fact, the S&P made a new high for the move at 1499.10 before settling at 1495.90.


Above is an hourly chart of the S&P showing how the S&P has "Respected" 1498 (A), after a quick & sharp break on Tuesday, the S&P plowed through initial short-term resistance (B). Trade back below 1490 that sticks should see the Weekly Swing Chart turn down on trade below 1473.75 this week or 1476.70 next week. The behavior from that point will be telling.

As you recall 1498 is an interesting level as it is a harmonic of the October 2002 bear market low. But, in this arena it is just another red cape for Hoofy who has shrugged off all picadillos of concern including one from the Matador: on Wednesday the New York Fed warned that the level of hedge fund risk was currently as great as it was prior to the LTCM fiasco in 1998. Hoofy snorted at that missive and charged higher jumping to yet another new record on the DJIA. He's a little record machine this Hoofy. And, although Boo's back is up against a wall – he's seen smoke coming out of Hoofy's ears before. He remembers well the blow-off in the summer of 1987 and the spring of 2000. And, well, it's smokin' once again.

Hard to pinpoint where and when someone will break ranks or what the ultimate pin or catalyst might be, but as W.D. Gann said "Time is more important than price" and this weekend is a natural turning point. It is forty-five degrees from the spring equinox. Voodoo technicals? Maybe, but last year the market hit a high at exactly this point and then a low in mid-June which was ninety degrees from March 21.

There appears to be no chinks in the armor of the bull argument other than the fact that new highs on the NYSE were 394 five days ago, and were only 232 new highs on Wednesday despite impressive volume – and oh yeah, the fact that the G-Spot (GOOG) was off the radar and down three. But rust could develop into this weekend's turning point given Friday's important jobs report and how loud the D.C. Madam sings on Friday night.
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No positions in stocks mentioned.

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