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Bullets Over Jackson Hole

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ARE WE WITNESSING A HOLY GRAIL SETUP?
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Editor's Note: The following is a free edition of Jeff Cooper's Daily Market Report. For a two-week FREE trial of his daily commentary and nightly day and swing trading picks, click here.

You see, in this world there's two kinds of people, my friend. Those with loaded guns and those who dig. You dig.
-Clint Eastwood (The Good, The Bad and The Ugly)

You know that I’m feeling good, I’m gonna work it on out
-Waiting For My Man (Velvet Underground)

On the 7th day from the signal reversal bar on August 21, the S&P 500 (^GSPC)/SPDR Trust (SPY) gapped down and continued down, offsetting the recent Holy Grail outside-up day on August 24.

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The 24th was an important session because it represents an outside-up reversal from the 20-day moving average.

Many traders call a test of the the rising 20 dma a Holy Grail setup.

This was the first kiss of the 20 dma since the beginning of the month.

However, the rally off the 24th was meager.

The SPY rallied to give two consecutive higher highs which carved out a Minus One/Plus Two sell setup.

Why? The 3-Day Chart was pointing down, satisfying the Minus One part of the setup while the first two consecutive higher highs satisfied the Plus Two part of the equation.

So, the S&P is caught between two opposing signals:

A potentially bullish Holy Grail and a bearish Minus One/Plus Two sell setup.

While Thursday’s action looked like a bearish resolution with the S&P/SPY triggering a Kaiser Soze (a Reversal of a Reversal), since Thursday offset the upside reversal from the 24th, my thinking is that either the Squid or the Fed put on a short-sell basket program so they could take the market down and take it right back up on Bernanke’s speech -- jamming the shorts into the light holiday volume and long weekend.

All the Dow Jones Industrial Average (^DJI) names closed down -- except for Merck (MRK), which was up pennies -- so the market could easily be compressed enough for a big move on a pre-holiday session if I am correct about the above dynamics.

So, I wouldn’t read too much into the action off the Bearded One’s Word From the Mountain.

That said, despite the market's penchant for the volatile Bernanke Cha Cha on Fedspeak, the strong rally in the futures this morning suggests a trend day.

So unless a clear-cut downside reversal plays out from an opening Spike & Reversal pattern, I wouldn’t throw short logs on the fire today -- no matter how bearish one’s opinion is.

The hook looks like it's set for the day and it’s fitting that the end of the month will see a rally play out from Thursday’s close on the 1401 midpoint of the month.

As noted in yesterday’s report, the S&P was coiled for a 30-point move in either direction from Jackson Hole.

That indicates the key 1370 support level or the key 1430 Cube.

Remember, 1430 represents 6 full squares up from the 666 low for a true square-out of a 6-sided square or cube.

It is worth considering that the advance from the 2002 low of 768 to  the 1576 high in 2007 was also an exact cube of 6 squares.

So, with a possible bearish pattern of 3 drives up into this level since March 2009 coinciding with many historic bearish cycles, caution is warranted.

Moreover, today is 1379 calendar days from the low around the world on November 21, 2008.

1379 ties to the current level of the rising 50 dma and the lower channel of an ascending channel from July.

It is interesting that going into the important 9/12 vote in Germany as to the constitutionality of the bailout and the important upcoming ECB meeting just days before that this 1379 calendar day count will be closer to recent lows.

A rally on the important Friday weekly close will install the semblance of a little double bottom. While it could hold, a break of this pattern coincident with the above calendar day count into the anniversary of Lehman’s collapse 1440 Fibonacci days later is something to keep on the radar.

Conclusion. It seems a cliché to say the market is at a major crossroads but the market is at a major crossroad. The market may be perched for the second leg down since the 2007 peak. Alternatively, a breakout with authority above 1430 will buy time and implies the distinct possibility of a new high on the S&P. 

A new high around S&P 1600 may not be as bullish as it seems as it would carve out the possibility of a 12-year Megaphone Top.

How much time a genuine breakout will buy is debatable. It could be a false one like the breakout in late 1972/early 1973 after several attempts which was followed by a devastating 2-year bear market.

The next report will take a look at the cycles and how much time could be bought following a genuine breakout by Mr. Market.

Strategy.  Bernanke is going to talk about the weakness in the economy but unless he is crystal clear about firing the QE 3 gun, the dollar will rally from support and Gold (GLD) and Silver (SLV) and oil will back off.

Form Reading Section





In addition to the setups from the nightly report, there are two other names of interest  today:

1) I would continue to look at Acme Packet (APKT) from our recent long setup.

2) Joy Global (JOY) is also poised to pop following an Earning’s Reversal and what looks like a pause day on Thursday.
 
POSITION:  No positions in stocks mentioned.

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