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When Time Is Up, Price Breaks No Matter Where It Is


When time is up, all support is made to be broken (and vice versa: when time is up on a bear trend, all resistance exists to be captured).


Come out, come out with things unsaid
Shoot an apple off my head
And a trouble that can't be named
Oh, a tiger's waiting to be tamed.
-Clocks (Coldplay)

Some say that I'm a wise man, some think that I'm a fool
It doesn't matter either way: I'll be a wise man's fool.
For the lesson lies in learning and by teaching I'll be taught
For there's nothing hidden anywhere, it's all there to be sought
And so if you know anything look closely at the time
At others who remain untrue and don't commit that crime.
-(Look To Your Soul) Procol Harum

Stocks plummeted Tuesday in their worst performance in four months.

It is the anniversary of the 2002 panicky low. It is near the anniversary of the 1998 LTCM pre-panic peak and the 1990 pre-panic peak.

It is the anniversary of the 1957 high prior to a 20% sell-off into October of that year and the over-25% decline in the Rich Man's Panic into November of 1907.

Recently, I showed the chart of the 50-year Jubilee cycle from 1957.

Click here to enlarge.

The pattern is eerily similar to the current picture of the DJIA so far this year.

Click here to enlarge.
Has the DJIA traced out an M – A Top Formation as in 1957?

Note the spring break in both years followed by a mid-July peak in 1957 and how both years appear to have traced out bearish M-A top formations.

Bearishly, the S&P has not only undercut its June high but it has also offset Trumpet Thursday, July 12. Does anyone remember the celebration and hoopla trumpeting the "big" breakout in the S&P and smooch by the DJIA of 14,000? This was supposed to herald the easy money milk run to 14,500, proclaimed by some pundits to be a layup. Perhaps.

On Tuesday the S&P tried to hold a Measured Move at 1521 (1541 to 1527 = 14 points (A) and 1535 – 14 Points = 1521 (B) ). When 1521 failed in the last hour, stocks were crushed.
Click here to enlarge.

On Tuesday, the S&P closed below its 50 DMA for the third time since the June high. Additionally this coincides interestingly with a trendline drawn across this year's low close (Points A and B).
Click here to enlarge.

Because the market had shrugged off all concerns, what could possibly derail the chorus line and the bunny hop of the well-advertised advance to new highs?

One thing. Time. Time turns trend.

When time is up, price breaks no matter where it is. When time is up, all support is made to be broken (and vice versa: when time is up on a bear trend, all resistance exists to be captured).

However, as they say, the news breaks with the cycles.

Yesterday, I mentioned the "Ominous" Pattern in the Russell 2000. Tuesday, the index collapsed breaking a trendline from March.
Click here to enlarge.

In perhaps a signal of more pain to come in the mortgage lending market, Countrywide Financial (CFC), the largest U.S. mortgage lender, reported solidly lower 2Q profits, slashing future earnings forecasts at the same time.

Was this news really such a surprise or does the psychology break with the cycles?

Despite the fact that Treasury Secretary Paulson told Larry Kudlow in a recent interview that the administration wants a stong dollar, every Treasury Secretary since Alexander Hamilton has said the same thing. The difference being Hamilton was probably the only one that said what he meant and meant what he said.

Paulson went on to reiterate that the housing market is bottoming ---in broker-ese, that's consolidating at lower levels--- and that the mortgage sludge is contained and will not contaminate the rest of the economy.

Secretary of the Treasury Paulson, meet Secretary of State of Mind Freud.

Crowd behavior cannot be contained. Psychology is viral.

Apple (AAPL) also shot an arrow through the market's head on Tuesday, scoring its largest decline in four years, off 8.81 or 6%.

Apparently the drop came on news of a "big two days" of AT&T's (T) activation numbers for buyers of the iPhone.

Despite the fact that reports say many users had activation problems, was just two days of infomation scrutinized to the iTune of a loss of more than $7 bln of Apple's market value? Or did time and price square out? The news breaks with the cycles. Time turns trend. Psychology breaks price.

On the Buzz and Banter on Monday I offered that AAPL had squared out at 145 as the stock was up 900 degrees in price in 360 degrees in time on the Square of Nine Calculator.

On June 12, I wrote a column on AAPL in which I offered that "the behavior at the 116/117 level will indicate whether a potential target between 133 to 144 is in the cards".

I went on to point out that July would be the seventh month up from the last turndown on the monthly chart and that in July AAPL would be up one year from the last major low at 50.

It may seem like voodoo technicals, but I can assure you that I have been studying time and price cycles for twenty years and they are not happenstance.

The square-outs and measured moves and patterns in such leaders as (BIDU), Apple (AAPL), Mastercard (MA), and Goldman Sachs (GS) speak to the vulnerable position of the market and the time and price cycles, which suggest a panicky sell off if the legs of the M-A pattern are broken.

Because the market has gone an inordinate period, four years, wihout as much as a ten percent decline, I believe it is likely that if a genuine decline develops it will not stop at ten percent as many expect, but will extend to as much as 20 to 25%.

I realize that the notion of a 25% decline is unthinkable, but an average year sees one 20% decline. Consequently, reversion to the mean could ream out profits quickly as money managers panic to book profits before they disappear after such a stellar first half, prior to the idea of an October in a seven year.

Earlier, I mentioned the panic low on July 24, 2002. From that low, the S&P exploded approximately 25% in one month. Could a confirmation of an M-A top and accelerated selling witness a mirror image foldback and a parallel decline in price 60 months later?

Tomorrow, I address that question and show how compelling the geometry of this potentially crimson clockwork is.

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Position in MA.

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