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Kickoff to a Devastating Decline?
September 26, 2012 09:47 AM
Editor's Note: The following is a free edition of
Jeff Cooper's Daily Market Report
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The bulls always like the market. Except when then don’t. Then they beg and cry and, like a magic wand, it goes up and they like it again.
I am predicting a correction, but it is difficult to say when it will happen.
-Every Wall Street Analyst
QE ain’t what it used to be.
Apparently, neither is infinity as the market is poised for a faceplant into the event horizon of the Bernanke Bounce -- last Thursday’s explosion in the
) to our 1460-1468 projection.
This defined the high close for the move so far on the next session -- the September 14 close of 1465.77.
The close prior to QE-infinity being unleashed on all suspecting savers and anyone having to buy food and gas was 1436.56.
As I’ve offered recently, a close that offsets this level 1425-1435) is a sign of the bear. A complete retracement of Boom Boom's Bazooka, especially before the smoke has even cleared, means something’s rotten in Denmark and on Broad & Wall as well.
It means that my forecast (prior to the Best Laid Plans of Mice And Ben) for an ‘overthrow spike’ to 1460-1468 that could be a culminating buying climax may be correct. To recap, 1460 is a 90-degree overthrow from April’s 1422 peak while 1468 is a 90-degree overthrow of the major 1430 pivot.
Why is 1430 a major pivot?
Because 1430 is precisely 6 revs or squares up from the S&P low at 666.
This is the exact relationship between the 768 low in 2002 and the 1576 high in 2007.
Is it possible that following the secular bull market top in the first quarter of 2000, that the S&P has carved out two major corrective/contra moves of 6 squares each -- one from 2002 to 2007 and one from 2009 to 2012?
It is interesting that the remarkable recurring 60-month cycle shown recently in this space played out in that 2002 to 2007 cycle, and that in a sense, the market is mirroring that behavior in as much as the S&P and
Dow Jones Industrial Average
) are challenging 5-year highs.
The last time the S&P traded at last week's 1474 high was January 2008. In just a few months, we will be 5 years from that pivotal time frame.
Interestingly, the close in the eye of the hurricane, December 2007, was 1468.34. So arguably, a week ago, the S&P finally satisfied a backtest of the level where a can of whoop-ass was opened on Hoofy.
Last week, we noted that with the convergence of 60 months from the high (early October 2007) and 120 months from the low (early October 2002), a run up into this time frame implies a
Hunt for Red October
may be on.
However, we couldn’t help but wonder, with the "Don’t Fight the Fed" mantra taking on a new superlative and universality/unanimity of opinion and players seemingly complacently perched for a quarter-end markup, whether we couldn’t get a quarter-end window undressing instead. Did some big funds break rank and cut & run to beat the crowd?
Whether it was Spain or 3-day settlement accounts causing yesterday’s liquidation, they need to hold 1425 to 1430 today or a bit of panic could set in.
This brings to mind another panic. This weekend will be a Fibonacci 1440 degrees from September 29th, 2008.
The market got crushed on Monday, September 29, 2008 with the DJIA skidding a very Gann-ish 777 points (7 being the number of panic for legendary market trader W. D. Gann).
The 7% DJIA loss was the biggest single-day point loss ever following the House rejection of the government’s $700 billion bank bailout plan.
That’s alotta 7’s. That was some quarter-end window undressing.
The S&P lost 8.8% that day, it’s SEVENTH worst day ever on a percentage basis and its biggest one-day percentage decline since the October 1987 crash.
This 1440 Fibonacci fractal time period is worth considering since 1440 degrees in time from the May 2008 pre-crash pivot high saw an important pivot high in May 2012.
Likewise, 144 Fibonacci months from the test failure high at the end of August/beginning of September 2000 ties to September 2012.
So this is an important month. My thinking has been that if the S&P could hold up and extend past early September, it could spike into the end of the month.
The implication was that if the market could hold up, we could see an overthrow above the April 1422 high to 1460-1468.
The market held up and we got the spike with the S&P scoring a new recovering closing high of 1465.77 -- right in the middle of our potential topping window.
Was that it?
Let’s see what the geometry says. From the last major swing low in June at 1267 to the September 14th S&P high at 1474 is a range of 207 points. The mid-point of that range is 1370. This of course is the April high so we have some good vibration with the recent high.
Along with the September 29th crash 1440 degrees ago, there are some harmonics here with the October 19th crash in 1987. That was 25 years or 300 months ago.
Remarkably, 300 vectors the date of September 14 on the Square of 9 Wheel (or the Time & Price Calculator).
In my experience in working with the Square of 9, when an exact hit occurs, it often indicates that a time/price square-out is perfected. Such was the case at this year’s April 2/1422 square-out high and last years 1074/October 4 square-out low. There are numerous powerful examples of major time and price square-outs, not least of which are the 1576 October 2007 top and the 666 March 2009 low.
So considering this alignment, vibration with 1987 is worth considering. If September 14 remains the high and the market continues to roll lower, it is compelling that the Gann Death Zone of 55 days (again a Fibonacci count) ties to election day, November 6.
In other words, 55 calendar days from the August 25 top in 1987 was the October 19 crash that year. A similar 55 days from September 14 ties to November 6.
On the first day after the election in November 2008, the DJIA dropped 486 points.
After 2 days, the decline was 929 points.
After 7 days, it was 1342 points.
After 14 days, the decline equaled 1628 points.
Will history repeat? As a friend noted a week ago, “Looking at a chart of the S&P over the past several days, all I can think of is a tightrope walker where 1460 is the wire.”
Yes. And the market has been doing its best imitation of The Flying Wallendas for some time with Uncle Ben as the net.
Wait a minute --The Flying Wallendas didn’t have a net.
I get to speak to a lot of smart people in the financial markets. During the Green Shoots of March 2009, few if any thought a rally could persist for 42 months.
The market has seemingly shrugged off a number of cycles along the way that suggested a top. And in fact, there was an important top in April 2010, April 2011, and again in April 2012.
The Green Shoots were watered with more stimulus in the decline into the summer of 2010, and again in the summer of 2011.
But here in 2012, just prior to the election, Ben has offered up more QE on heels of a RALLY, not a DECLINE.
I can’t help but wonder if the politicization of the Fed with this latest move before the election as the market flirts with all-time highs doesn’t mark a culmination of a rally and not the beginning of one.
Did the spike into September 13-14 define a buying climax, marked by a low to low to high pattern of successive QE moves?
Most of the market veterans I speak with (and myself) have been perplexed that the market has been able to hold up in the face of major cycles due to exert their downside influence. Some of these cycles include the 75 year or 900 month cycle from 1937, the 50 year or 600 month cycle from 1962. And above, we noted the 25 year cycle of 300 months.
Click to enlarge
Despite the overt efforts of the central bankers to manage the markets, cycle adherents would have anticipated that natural waves and cycles trump central planning and manipulation.
I can’t help but wonder whether after trying to plug the financial, social, and political dam, this cluster of cycles will hit with a brute force over the coming months.
It’s been nearly 2 weeks since the S&P spiked into our 1460-1468 target and the market is not going up. Momentum is starting to pick up to the downside. A break of the 20 dma and 1440 and offsetting the Bernanke Bounce at 1435 will leave bearish weekly Train Tracks.
The S&P left a large range outside down day and accelerated to the downside after turning the Weekly Swing Chart down, which is bearish action.
Before they give up the ghost, they could still hold up into quarter end theoretically and even into early October, but if I am correct, it’s getting dangerous here.
Since the market has seemingly defied gravity and socio and geopolitical considerations serving to establish a bull market in complacency, the rubber band may snap back with a violence over the coming months that few contemplate.
Regardless of what Bernanke says, despite the “fixes”, many countries around the world are broke and are going to remain broke for a while in spite of inflation and cheap money. This is why I think there is a better than average likelihood of a 2-year bear market.
(Editor's Note: Jeff Cooper is now offering a special physical Square of 9 Wheel for $500, which includes a half-hour phone consultation with Jeff. Please email
for more details.)
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