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VIDEOTrojan Bull or the Ghost of Crisis Past?
By
Jeffrey Cooper
Feb 10, 2010 11:35 am
Hint: Beware, Trojan Bulls.
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"She said, 'I’m here on a shore leave,”
Though we were miles at sea.
I pointed out this detail and forced her to agree,
Saying, 'You must be the mermaid
Who took King Neptune for a ride.' "
-- "A Whiter Shade of Pale" (Procol Harum)
"A sense is what has the power of receiving into itself the sensible forms of things without the matter, in the way in which a piece of wax takes on the impress of a signet-ring without the iron or gold."
-- Aristotle
Yesterday morning during the rally I checked the Square of 9 Chart to see where 90 degrees up from the 1045 low came. It’s 1078. This was a level to watch for a possible pivot as time and price often turn on 90-degree decrements.
However, a more important observation dawned on me when focusing on the possible significance of 1045: This level corresponds to the March 6 low.
Click to enlarge
While I've looked at the harmonics from the January 11/19 dates of the high (which come in at 1067 to 1064 and then 1003), I hadn't looked at potential price vibrations that tie to the date of the March 6 low.
March 6 is a “master date” to measure from as it's a bear market low just as October 11 is a “master date," being the bull market high.Other harmonics of March 6 include 1013 and remarkably 1111. Remember that 1111 is the mid-point from the 2000 S&P peak to the 2009 low.
An hourly chart of the S&P shows that the index traced out what looks like five waves down to 1045. We got a large range bottoming tail last Friday from 1045. And while Monday looked like a failure to follow through, it looks like it may also have been a back test that put in a Hook Low trapping the bears. If you take a look, a similar pattern played out on the daily chart at the November low. Prior to Tuesday’s opening strength, I offered that an Up, Down, Up Sequence may be playing out.
While the S&P was rejected from 90 degrees up (1078) in a hurry on rumors Germany wouldn't backstop the Greek bailout, at the same time it didn't send the averages into the red. The market held up on the news, and that's a change in behavior worth considering.
In addition, I think the normal expectation would be for the S&P to get hit on the first time up to 1080. Remember this is the bottom of the band of horizontal support in December and the high of the Autumnal Equinox Key Reversal Day. It's a cocktail napkin level of lore. Be that as it may, the real pivots to watch in my opinion are 1083, which is 90 degrees down from 1150, and the Monthly Swing Pivot where the monthly chart turned down in January on trade below the December low. This was 1085.90.
The range from the 1150 high to the 1044.50 low is approximately 75 points giving a mid-point of remarkably 1083. Got geometry?
Moreover, checking the hourly chart of the S&P shows the possibility of a third drive up toward 1083ish and a declining trendline which would leave a potentially bearish 1 2 3 Swing Pullback . This is a bearish pattern.
Shorts can be tried the first time up to these levels but if the market exceeds them on a closing basis, the short-term trend will have turned up. And, the intermediate trend can only turn up after the short-term trend has taken the right steps.
I’ve said it often in this space, but it’s worth repeating: After a wash out, I've seen more traders lose money shorting what looked like bearish retracements with a big picture bearish view than I have with any other strategy. And this includes myself. The key word is "washout": How you define washout is relative. One man’s washout is another man’s opportunity. As I queried the other day: Bullish Correction or Bearish Kickoff?Clearly recapturing 1086 puts the market back in a stronger position. At the same time, a flattish trading range that skates under the 50-day moving average and fails to recapture 1086 is a bearish pattern.
Notable are what appears to be bear flags on the A Team: Amazon (AMZN) and Apple (AAPL). They both show seven-day wedges leaving N/R 7 signals yesterday (the narrowest range in seven sessions which suggests a pickup in volatility, which is normally a continuation of the underlying near-term trend -- in this case down).
Technically, we've seen a basing pattern just like in the June/July correction. However, the S&P must get past 1075 on a closing basis before it can entertain the idea of turning the interim trend up above 1086. Why? 1075 is 50% of the swing from the last swing high of 1105 on February 2 and the 1045 low.
If Europe bails out Club Med with Grecian Formula, money managers' hair may go from white to regaining some color and composure, and the Ghost of Crisis Past may turn out to be Casper the Friendly Banker (Germany).
The Greek spread may soon be just the usual puree of black olives, not the German bund rate differential versus the Greek Treasury bonds rate. The olive oil may dress a salad of excuses for those “in the know” to fool and fleece those not “in the know,” forcing them to dump their investments in what may turn out to be just another mini-panic. Is that the learned behavior through the lens of the last year -- which it pays to ride through panic? Or, contrarily, through the wider lens of a long and winding decade to nowhere find its way into the Grecian formula kaleidoscope?
At the same time it "feels" entirely possible that another panic/crisis has snuck up on portfolio managers turning their hair white overnight like Bear Stearns.
“I have no idea where the rumors originated, but there is no liquidity crisis at Bear Stearns.” -- Alan Schwartz
Is Jean Claude Trichet the new Alan Schwartz?
Was the corporate crisis of 2008 an appetizer to a sovereign crisis?
Conclusion:
If they never go below 1060 and can recapture 1086 the trend may turn up. If they base all day today they should turn higher Thursday and Friday with the stage being set for a possible extension into option expiration. Be that as it may, if the market buys time here and traces out a longer rally than we have seen -- something more that two to three days -- the perception will begin to sharpen that another bullish correction has played out that echoes the correction from six months or so prior. Perhaps, but it's worth considering that that was the same perception that crystallized a week before the crash in 1987 following a seven- to 10-day rally with the consensus convinced another bullish correction that mirrored the correction from approximately six months prior had occurred.
Beware Trojan Bulls.
Trading Lessons:
No positions in stocks mentioned.
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