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Time and Price


Market patterns and what they mean for the week ahead.


Editor's Note: The following is a free look at Jeff Cooper's Daily Market Report for today. If you're interested in a 14 day FREE Trial, contact us.

I'm goin' down, down, down.
Got my big feet in the window,
My head is on the ground.
Goin' Down ( Stevie Ray Vaughan)

The perfect speculator must know when to get in,
more important when to stay out,
and most important, he must know when to get out once he's in.
Michael Covel

60 was incremental in the Mayans' use of time. Also, W.D. Gann often spoke of the Master Cycle of 60 Years. Additionally, in the Bible we read about the natural span of a well-lived life of 120 years – 60 years being one-half that length.

Sixty weeks is one year and approximately sixty days, or fourteen months. There are many examples of significant turning points in the financial markets after a fourteen month swing. For example last week I showed a picture of oil that may be at such a juncture currently.

There are many examples of the financial markets making significant turns after 60 months. For example, the historic 1982 low and the run into August 1987. Likewise, there was an approximate sixty month advance into the first quarter of 2000. Then, of course, there was the sixty month advance from October 2002 to October 2007.

Prior to the "Orthodox" high in the market last July I mentioned the possibility of a Mirror Image Foldback Pattern playing out from 2002 to 2007. The blow-off peak in July 2007 seems to have mirrored the Waterfall Capitulation into July 2002. Consequently that pattern called for an over-throw test in to October 2007 – just as there was a test in October 2002 of the July 2002 low that undercut the prior low.

For months now we have been focusing on this March as a significant turning point. I suspected that if the market ran-up into a lower high this March that it would mark an important peak. However, cycles can sometimes invert. It is of course possible that the market may still rally strongly in March, but given that March 12, 2003 marked the kickoff of the last bull market advance, the washout of stocks to a new closing low in the last two days below this year's January low suggests that if a turning point is in fact playing out, it is a low at or near the anniversary of the 2003 low.

It is theoretically possible that the market could rally violently for two to three weeks, marking a high near the end of March as well, but I'll believe that when I see it.

The change in modus operandi of the market on Monday in not bouncing in to the close suggests the session's close at 1273.35 may be a wash-out test low at or near the anniversary of the March 2003 low.

Why? 1275 S&P is 720 degrees below the 1576 all-time high. For those who think time and price square-outs are happenstance hocus-pocus, it may be worth rereading some of my columns from last year going into October projecting 1576 and the anniversary of the October 11, 2002 low as a potential point to look for the end of the bull market.

In fact, 1576 equates to six full cycles of 360 degrees up from the 768 S&P bear market low on October 9-10, 2002. Six full cycles or squares represent a completion move as it is a true square or a six sided cube.

Monday's behavior, void of a last hour rally or squeeze was a change of character which may reflect the notion of a washout. Many times I have observed that after a long run (or decline) the market will score a high tick close at a high (and vice-versa). After a long run (or decline) this appears to be sort of a fleur-de-lis or cherry on the top of a move. Such was the case at the all-time S&P closing high on October 9, 2007.

In addition, while I am no Elliotician, the S&P appears to have traced out what may be five waves down. It seems to me that many inexperienced shorts may have gone home complacent as they were not pressed into Monday's close. If the market gaps and goes to the upside on Tuesday it would seem the shorts may be poised to simply throw more logs on the fire, while at the same time wannabe bulls will be poised to fade or disbelieve any early rally. Be that as it may, as I said above 1275 is a potential key level while at the same time a five-wave decline may have been fulfilled on Monday.

S&P 500 daily chart

If 1270 breaks I would expect a move to 1240. The S&P is in its eighth week of decline since violating the fourth-quarter low of 1406 scored in November. Monday was the eighth day from the roll-over that began at A, when the index tagged its 50 DMA.

Strategy: As an intraday chart from Monday shows, a move above 1380 and a consequent recapture of the 130 SPYDER strike that holds and a close above that strike would suggest a rally. A close above the prior day's high any time early this week would be a signal that ignites the market's dry timber and indicates that the market's compression may be ready to explode out of the blue.

Trading Lessons

Monsanto (MON) 10 min chart

Pivot Points

S&P 500 10 min chart

With Friday's and Monday's new low closes that have tested 1275 S&P and the January intraday lows, the compression on the 10-minute S&P chart from Friday / Monday defined by a Descending Triangle is clear.

Below are a few examples of day and swing trading setups I provided last night for setups today. It's important to note that a signal is not valid unless the stock trades at or above the listed entry price for longs and at or below the listed entry price for shorts. For day trading picks, I view it as a good idea to sell half the position on a 1 point favorable move in this choppy environment and raise your stops on the remaining piece to break even. For swing trading setups, I have a 2-point gap rule. Any stock that opens 2 or more points above the listed entry price for longs or 2 or more points below the listed entry price for shorts should be ignored for the day. The initial target is the price where I look to sell/cover half the position.

Hit and Run Day Trading Setup (CRM)
Entry: ORB (Opening Range Breakout - a break above the first three 10-minute bars)
Stop: 1 point from entry
Pattern: Holy Grail

Swing Trading Setup

VMWare (VMW)
Entry: 46.50
Stop: 48.50
Initial Target: 44.50 trade toward
Pattern: Expansion Breakdown

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Position in VMW.

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