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The Big Picture

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Now that the third quarter is in the books, it's time to take a look at the big picture.

First, let’s look at the Quarterly Swing Chart of the S&P 500 (^GSPC) from the secular bull market top in the first quarter of 2000.

What is interesting is that from the 2009 low, there was a 4-quarter rally followed by a strong decline in the 5th quarter. The new recovery high in April 2010 led to an outside-down quarter which carved out a Plus One/Minus Two buy setup on the quarterlies. This was the summer low in 2010.

Why was it a Quarterly Plus One/Minus Two buy pattern?

Because the 3-quarter swing chart was pointing up, followed by two consecutive lower quarterly lows.

From the summer low in 2000, the S&P had a similar period of 4 quarters of advances playing out, followed once again by a strong decline in the 5th quarter from the prior quarterly low.

Once again, the S&P left a Quarterly Plus One/Minus Two buy setup in the beginning of the 4th quarter of 2011 (October 4).

The S&P has once again traced out 4 positive quarters from early October 2011. Starting with the new quarter today, we will be in the 5th quarter off the prior quarterly swing low.

Will history repeat itself? Will the beginning of the 5th quarter up from a major low see a sharp decline?

If so, the larger underlying question may be whether the market bounces back strongly again after a multi-month correction of 1-2 quarters as it has done since the March 2009 low.

I say this because the big picture on the S&P is a clear pattern of 3 drives higher testing the close of the fourth quarter of 2007. The close for 2007 was 1468.34.

The high close on the dailies in the last quarter, the 3rd quarter of 2012, was 1465. 77.

That’s close enough for government work.

Has the S&P carved out a bearish backtest of the level where it was before the plug was pulled in earnest in January 2008?

Essentially, this pattern of 4 quarters ties to the yearly geometric cycle of 360 degrees.

Note that measuring by the Quarterly Swing Chart, the crash of 2008-2009 was basically 4 quarters into November 2008, which was the low around the world. The fall of 2008 was the low for the Nasdaq (^IXIC).

The decline in the S&P into March 2009, though deep, was essentially a short-lived undercut (in hindsight) as price stayed below the 2008 low of 741 for only a couple of weeks.

The undercut was 75 S&P points. I’m not sure if this means anything, but adding 75 points to the September 4 S&P swing low at 1396.56 gives 1473.56.

The high for the 3rd quarter (the recovery high for the move) on October 14, 2012 was 1474. 51 -- a 1-point differential.

If, as Gann said, “the market geometrizes”, then there is some powerful geometry in place.

Going back to the beginning of the secular bear market in 2000, the S&P declined for 4 quarters prior to a rally phase. Note that the entire bear market on a quarterly basis as measured by the first turn down on the Quarterly Swing Chart was 8 quarters, with a rally beginning in the 9th quarter (late 2002).

Note the pivot that occurred with a Quarterly Plus One/Minus Two buy setup after the 2002 low in the 8th quarter from the sequential count of 4 quarters.

Then note the next sequence of 8 quarters followed by a 3-quarter blowoff to the all-time quarterly closing high for the S&P in the 3rd quarter of 2007.

What was important about the 3rd quarter of 2007 is that it was an outside-up quarter. There was no follow-through from that outside-up quarter. That is not necessarily in and of itself bearish, but when the S&P knifed below the 3rd-quarter low in the first quarter of 2008, a bearish Kaiser Soze pattern (a reversal of a reversal) was triggered.

The ‘Kaiser’ lived up to his reputation and took no prisoners.

This is the value of Wheels of Time or Wheels within Wheels. If you don’t look at all the time frames, you don’t get the entire picture. You don’t get the complete message of the market. This is what I walk through in my video course, The New Swing Method, which tracks the S&P from 1941.

It is the only unified theory of market behavior with which I am familiar.

I have been working on a physical Square of 9 Wheel, or Time & Price Calculator, for a long time, and it is now available. It is 2 feet X 2 feet with a plastic overlay that allows you to use W.D. Gann's method of making precise forecasts. The Wheel comes along with a half-hour phone consultation in which I discuss what I've learned in 20 years of using the Wheel.

If you are serious about the markets, this is something you want. If you are interested, email

Checking a Monthly Swing Chart from 2008 shows 3 drives to a possible bearish backtest with a little 4th swing which you sometimes get. This is in line with W.D. Gann’s concept of 3 to 4 sections in an advance.

The monthly S&P ended with a Doji indecision pattern with a close at/near the middle of the range for September. This is sometimes indicative of a signal bar and change in trend.

Conclusion. The mutual funds profess to the SEC that they are not market timers and consequently are “prohibited” from selling until after quarter-end.

Often, this selling is set up with a 1 to 3 day buy program at the beginning of the new quarter.

That said, the beginning and end of quarters have a strong tendency to define changes in trend. Sometimes, they can be acceleration points.

If the trend is turning, the S&P can bounce off the April high again to either a 50% retrace of 1445 or a slight new high, but slicing through 1422-1430 with authority should be the sign of the bear.

Tomorrow’s report will take a look at the Yearly Swing Chart of the S&P to glean the message of the markets.

Form Reading Section

POSITION:  No positions in stocks mentioned.