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A Respite Ahead?


Currency concerns are reminiscent of the backdrop in the 1987 crash analogue, but the market has apparently diverged from that pattern with Monday's action, at least for the time being.


"I've this creeping suspicion that things here are not as they seem."
The Stone (Dave Matthews Band)

The market gave us little new information on Monday.

Although there was no lasting follow through from Friday's stab down, the tape still trades bearishly with an attempted turn turned back at the overhead 200 dma of the S&P. Also, fundamental problems--economic data, the yen carry unwind and the U.S. dollar at a fifteen year low-- remain a stone around the neck of the S&P. Defined by lower highs, the index seems to buy time until ultimately heading lower---and the big break below 1430. That's how I see it anyway.

Currency concerns are reminiscent of the backdrop in the 1987 crash analogue, but the market has apparently diverged from that pattern with Monday's action, at least for the time being. But with fundamentalists like Greenie pointing out the similarities perhaps the scenario is crowded and we get a drifting liquidation.

Nevertheless, historic patterns don't dovetail precisely: the market, although it has its own internal clock, isn't a fine Swiss watch.

Monday may have been a pause day rather than a paws day. Such was the case with last Thursday's stabilization between last Wednesday's and Friday's large range declines.

Be that as it may, it's a Fibonacci fest out there as Tuesday heralds the pivotal 55th calendar day from the July high. The 89th calendar day falling on the date of the October 1987 crash, October 19.

The key for the bulls seems to be 1440 S&P. Initially I assumed that key support was 1430ish but a look at the Square of 9 Chart shows the 1440 is important as it squares (90 degrees) from the August 16 reversal date. Additionally, 1440 S&P is 270 degrees down from the 1556 high.

Click here to enlarge.

There is a better than average likelihood that the next time 1440 is tested it will be breached. It has held three times and if snapped next time around the index will issue a Rule of 4 Sell signal.

Click here to enlarge.

It is also notable that September 15 is 180 degrees or in opposition to this year's March 14 low. So, this remains a key week, cyclically speaking. It will be interesting to see where the index closes this week. It will be interesting to see if the S&P gives a false positive, an all-safe, an out-of-the-woods signal and starts down next week below critical mass as, seasonally, September 21 and the fall equinox loom large. That was the low six years ago after 9/11.

Conclusion: The S&P is testing key levels wedged between its declining 50 dma, tested last week, and its overhead 200 dma which looks to be tested again today.

Click here to enlarge.

At the same time, the heart and soul of speculative sentiment, Google (GOOG) and Apple (AAPL) may be telling the tale of the tape: Google reversed back below its 50 dma on Monday after peaking (last week) into a downside gap. Apple is trying to reassert its uptrend as it rebounds from a 1-2-3 Pullback off its 20 dma. However, as the charts below show, Apple has precious little headroom if it has in fact traced out a double top on is weekly chart.

Any hook back down here by Apple may mean it is rotten to the core as to the intermediate picture.

Click here to enlarge.

Click here to enlarge.

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.

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No positions in stocks mentioned.

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