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Boo's Not Out of the Woods


Could it be that the market has peaked on the week of the 20th anniversary of the 1987 low?

My beacon's been moved under moon and star
Where am I to go
Now that I've gone too far
Help I'm steppin' into the twilight zone
The place is a madhouse
Feels like being cloned
Golden Earring (Twilight Zone)

There is a wind where the rose was
Cold rain where sweet grass was
And clouds like sheep
Stream o'er the steep
Grey skies where the lark was.
Autumn (Walter de la Mare)

It's a little premature for Boo to take a victory lap, to say the least. I don't think there is a bear on the Street that wants to jinx the Minx for fear of eating crow for Thanksgiving.

And, as Toddo opines, Hanky Panky surely has the savvy to bring home the bacon. Like any good master of the trading universe worth his salt, Hank knows that the close is more important than the open, that the close is what traders take home.

Be that as it may, Friday's close squeezed the bejesus out of the shorts. Even though it was only an inside day, it felt like another barn burner, didn't it? But, if the close talks, Monday's open swore a blue streak. How so? As anticipated, there was a better than average likelihood that given Thursday's large range reversal or Lightening Rod (LROD, large range outside day down) that Friday was just a pause day - in this case a Paws day from where Boo sits - before continuation in the direction of Thursday's thrust down.

Click here to enlarge

A) Last Thursday showed a wide reversal from 1576.
B) As anticipated Friday was a "Pause" or Paws Day for Boo
C) Note how the S&P rallied over after the Daily Swing Chart turned up on Monday morning. The index bounced off its 20 DMA near 1540.

The S&P was shouting and swearing for a short to be initiated Monday morning. Why? Well, the daily swing chart turned down on Thursday's key reversal. When the daily swing chart turned back up on Monday morning on trade above Friday's high, the market turned limp and rolled over. This is one of the best tools I know of for determining the trend on any time frame. If the daily trend was still powerfully up in runaway mode, the S&P would not have buckled on Monday morning's turn up. If Thursday's reversal from my 1576 pivot was in fact significant, a daily swing chart turnup on Monday should have defined a high if a turning point was at hand. This is exactly what occurred. In fact not only did the turn up of the daily chart define a high but downside acceleration ensued.

If the trend were strongly up I suspect the S&P would not have continued to accelerate lower once the Weekly Swing Chart turned down on trade below last week's low of 1546.70.

Notwithstanding the potentially bullish action in that, a late bounce saw the index regain this level somewhat.

As you know, Thursday's reversal occurred at an important level, a very important level. The 1576 high is a key six 'squares' of 360 degrees up from the bear market low of 768.

Interestingly, rounding off the square root of that bear market low is 28 or the moon cycle of 28 days. The ancients told time by the moon or month while we use the sun.

In addition, 1576 was tagged in the vicinity of the anniversary of some important highs and lows such as the 2002 low, the 1989 low and the 1990 low. Could it be that the market has peaked on the week of the 20th anniversary of the 1987 low when counter-intuitively many, including myself, were expecting some kind of low in this time frame when selling erupted this past July?

Wouldn't it be ironic if a test failure was playing out in October just when the Street had sailed through the worst market month, September, a credit crisis, exploding oil and an imploding dollar, just when the majority on the Street were convinced that the worst was behind us, that we were out of the woods? Just askin'.

But, with Elmer and Daffy running around with double-barreled shot guns you never know when you're out of the woods if you've been on the dark side. Certainly, Boo has the buckshot in his backside to prove it.

So, although it is certainly too early to say the bullet has hit the bone as to Hoofy's stance, two real distribution days out of the last three sessions have occurred since the S&P hit 1576. Happenstance? Perhaps.

The behavior by the S&P at its 20 DMA, which coincides with hourly support near 1540 that was tagged on Monday, should tip off the tale of the tape as to its agenda for option expiration on Friday.

Click here to enlarge.

An hourly trendline from Boom Boom's rate cut bazooka has been broken. The behavior as that thrust high, A, is approached or encroached will be telling.

Unless the old level of lore, 1555/1556, is recaptured I would be cautious about chasing the longside here as October has a nasty reputation as a cruel dude and a penchant for busting parabolic piñatas.

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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