Editor's Note: Jeff will be out of the office for the rest of the day handling personal matters. There will be no intraday alerts.
Been dazed and confused for so long, it's not true
Dazed And Confused (Led Zeppelin)
Tax selling continues and the big picture cycles that we warned about for months continue to exert their downside influence. These were the 100 year cycle and its harmonics of the 50 year, 25 year and 75 year which all led to dramatic declines. These declines were not short-lived as in a few months.
More and more this is beginning to look like the kickoff to a 2 year slide and market participants are at a point of recognition and clamoring to get out the door in order to salvage whatever unrealized gains they have.
Professionals may smell that a billion dollar hedge fund is going belly up before year end, and if that's the case, the selling won't stop.
Speaking of points of recognition and multi-year declines it is worth remembering the fractal of the pattern that I've pointed to many times that marked the top in the S&P in September 2000.
To wit that was the weekly 1 2 3 Swing To A Test of that year's March top.
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The advance up from the March '09 low to the September 2012 top shows a MONTHLY 1 2 3 Swing To A Test of the pre-crash pivot high from 2008.
So this fractal is one degree larger. It is on the larger monthly wheel of time as opposed to the weekly.
We may indeed be witnessing a Lead Zeppelin Market.
Since our double time/price square-outs from September 14th and October 5th flashed warning signals the DJIA is down over 1100 points.
Click to enlarge
Note that the DJIA made a solo new high on October 5th. Importantly, this ties to the anniversary of the 2002 low and the 2007 top. I guess Gann's idea of anniversary dates isn't so crazy after all.
We suspected something big was in store on the convergence of the 120 anniversary of the 2002 low and the 60 month anniversary of the 2007 top. I'd rather have been wrong for the sake of the country and the economy, but it seems things have played out that way.
Now, despite an oversold condition at the key 200 dma moving average, the market got smashed again yesterday.
This may be another vital point of recognition for market participants with the S&P reaching a tipping point. Why? The S&P knifed through the mid-point of the June 2012 low to the September high. This was a range of 200 points with 1370 + or – as the mid-point.
In addition, this tied to the key 200 day moving average. Of course, this 1370 level was also last year's lows. When prior resistance does not act as new support, the market can implode.
Breaking this point of balance suggests a Ski Jump pattern may be playing out from the June low to the September top, and all the way back to the June low before year end.
Only time will tell if a larger Ski Jump all the way back to the 2008 low at 741 will play out. This ties to the monthly low close on the S&P in February 2009 at 735.
Only time will tell if yet another Ski Jump as occurred after the runup from 2002 to 2007 will occur with a multi-year 3 drive down in a secular bear market that takes the S&P/DJIA all the way back to the bear market lows.
The hoped for bounce off the 200 day did not materialize as both bulls and bears were likely calculating and as we sent in a note yesterday
, markets that fail to rally from deeply oversold conditions are dangerous markets. In fact, the McClellan Oscillator Summation Index is quickly approaching levels from where stock market crashes often times happen.
This is occurring as an Hindenburg Omen Crash signal was scored early this week as reported yesterday.
Technically, the market is now in free fall territory having breached the tipping point on the dailies and snapped a weekly 3 point trendline up from the 2011 lows triggering a weekly Rule of 4 sell signal in the process.
So, while clearly stocks have crashed, the pattern of a rollover from 3 drives to a test of the highs on the monthlies may indicate we ain't seen nothing yet.
This is why the action on the VIX
bothered me early this week with a sharp decline suggesting the market was waterlogged with complacency at exactly the wrong time according to the cycles and the patterns.
The market is approaching the anniversary of the 4 year cycle low which was a crash low on November 21st 2008. This was when many big name stocks such as Apple
(AMZN) and Google
(GOOG) scored their bear market lows.
This anniversary is approaching as the S&P is approaching a measured move of this year's April-June 155 point decline which equates to 1319. This ties to a test of the Quarterly Swing Chart low at 1325 and satisfies a 360 degree decline in price from the 1474 recovery high.
IF this level is tested into the anniversary of the November '08 low, and a rally phase is not generated, get out of Dodge. The failure for a rally to materialize from this setup suggests that the Hindenburg Omen and the McClellan Summation indicator implications for a further crash are playing out.
If the S&P stabs through 1319-1325 and the Quarterly Swing Chart low like a knife through butter, it implies this 1370 level where the S&P hesitated for a few days was probably a mid-point with a further 100 point drop to follow. This is the Ski Jump pattern mentioned above that takes the market all the way back to its June lows.
. Tuesday's outside down day below the S&P was the harbinger for Wednesday's smash. Now, the S&P is fast approaching the 1325 support which could be 1 more big down day away taking us into the anniversary of the 2008 crash lows.
While this may mark a climatic low of sorts, it is worth noting that December is the 49th month from important November 2008 pivot. As you know 7 is the number of panic and 7 squared ties to what Gann identified as a Crash Zone. Since the high was on September 14th I would not underestimate the idea that the market could continue down 90 degrees from high into mid-December.
While the daily Gann Crash Zone culminated last week, there may be a larger monthly Crash Count on the clock, 49 months from November '08 and 55 months from the May '08 pre-crash high.
What does December 2012 have in store for us?
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