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Don't Let September Swings Throw You


The market has a perverse way putting the hook in, of saving the sharpest of rallies for the tail end of a swing.

An then the man he steps right up to the microphone
And says at last just as the time bell rings
Thank you goodnight now its time to go home
And he makes it fast with one more thing
We are the sultans of swing.
The Sultans of Swing (Dire Straits)

Money is a horrid thing to follow, but a charming thing to meet.
-Henry James

All the swing highs in history in the not-so-sanguine month of September fall in the first week of the month.

They always look good at the top. They always look bad at the bottom. If the idea is to buy fear and sell greed, then is it possible that Tuesday's spike above the 50 dma on the S&P and above the prior swing high on August 24 at 1479.40 was the time to sell greed?

The market has a remarkable way of painting a picture that doesn't tell the true story at meaningful turning points. Kind of like a portrait by Picasso where an eye is where you would expect an ear.

You've got to have an objective way of trying to gauge the market's swings rather than reacting to its high and low notes. You have to try to listen to the rhythm of the whole song so as not to get sucked in when the music stops like a Johnny one-note.

And there is a tendency for the plug to be pulled abruptly when the lyrics and music ends. Such may have been the case with Tuesday's last hour run off and stab down open this morning.

An agenda may have been fulfilled. How can we gauge the S&P's swings to backstop that notion?

Although the daily chart of the S&P shows that it spiked over its 50 dma, it pulled back towards the bell to close at/near that important barometer.

Click here to enlarge.

Although the S&P off-set the August 24 1479.40 swing high, it did not recapture the more important swing high on August 8 at 1504, which was the high for the month of August. The August 8 high is a critical level because trade over 1504 in this new month of September would turn the monthly swing chart back up. There is a greater than average likelihood that there are substantial stops by the bears in this area. A failure by the bulls to run the stops above 1504 may speak to the level of conviction and power in the bull camp.

Be that as it may, if the monthly swing chart turns up and price sticks, (which is not my expectation) it suggests that something else is going on and gives some credence to the idea that August 16 was a potentially significant bottom, this despite the fact that the idea runs against the grain and in the face of historical precedents for runaway downside markets in a year ending in seven, based on time, price and pattern. But then again, perhaps, the U.S. is not the bastion of a free market. Perhaps it is not a level playing field, but one where the referees wear stripes for a reason.

Although the S&P recaptured the Monthly Swing Pivot, the level where the monthly chart turned down in July on trade below the June lows at 1484-ish, that level looks to be lost early this morning.

The important thing to remember that it is not the break above a trendline or the break above a level of resistance in and of itself that is bullish, but the ensuing behavior that sings the song. A great example of this is how quickly the S&P turned down after scoring a new all-time high in July above the March 2000 high.

The market has a perverse way putting the hook in, of saving the sharpest of rallies for the tail end of a swing. As Little Red Riding Hood exclaimed, "Gramma, what big teeth you have!"

Although, the swing by the S&P yesterday above the June lows and above the 50 dma looked good it is notable that the mid-point of the 90% down day on July 26 (the day the monthly swing chart turned down and the day an outside down monthly bar was installed) was 1491. Tuesday's close, 1489.40 Unless that 1491 level can be recaptured and on a closing basis the bulls will have their work cut out for them. That means the lower swing high of 1504 will stand.

Additionally, it is interesting that the July 19 high is opposition to the price of 1492.

Going to an hourly chart of the S&P, we see that a live angle up from the first pullback on the hourlies from August 20 at 1432 came in at yesterday's highs.

Click here to enlarge.

We see that an hourly channel from the August 28 lows of 1432 intersects at yesterday's. Importantly, the pattern of a 1-2-3 swing snapback to test the August 24 swing high and the August 8 high is a fractal of the weekly 1-2-3 snapback into the beginning of September in 2000.

That snapback was a return rally test of the March 2000 high and the rest was history. Did Tuesday trace out a test of the August highs which in turn were a retracement, snapback test of the July peak? If so, given the recent volatility, if Tuesday was such a test of a test, price should confirm quickly and violently---certainly before the end of the week.

Click here to enlarge.

The Boys were back in town as summer came to an end, taking over the turrets from the junior varsity team. They did their best to paint the tape. Maybe the tint will stick, maybe not. However, as the hourly chart shows a break of 1480 puts the S&P in a vulnerable position for a swing to a test of 1432. As the daily chart shows a break of 1432 will break what Hoofy hopes is an inverted right shoulder. And the Sultans of Swing, the Vicars of Volatility, will be back in town.

Editor's Note: Want more of Jeff's insight and trading ideas delivered to your inbox daily? Minyanville is proud to announce that we have launched Jeff Cooper's Daily Market Report, complete with Jeff's day trading and swing trading setups. Email Josh Sander for more details and how to sign up.
No positions in stocks mentioned.

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