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Since When Does October Spell Panic?

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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.

I’ve got a feeling I think that everybody knows
-I’ve Got A Feeling (The Beatles)

If Ben had waited to use his ammunition once things had a chance to self-correct, for the system to cleanse itself, things could have been different. Now? who knows.

QE3 was launched nearly a month ago and the market has gone nowhere fast. The S&P 500 (^GSPC) spiked into a high on September 14, followed by a pullback to test 1430, before rallying back to test the highs last week. Now, following the test, if the S&P breaks under the April top at 1422, it could panic with QE3 setting the land speed record for failed intervention.

But since when do panics play out in October?

One of the oldest and most popular refrains on Wall Street is “don’t fight the Fed”.

However, the market has been successfully fighting the Fed since the Bernanke high way back on September 13/14.

Today, the S&P is set to test the pivot low prior to the Bernanke bounce on September 13.

Another solid down day will probably break the back of the bulls.

Below the April high, the wheels could come off.

Below 1430 with authority suggests the move to 1468 was indeed a 90-degree overthrow.

Below the 1422 April high, is it possible that the market mimics the plunge that played out in Apple (AAPL) when it sliced through its prior swing high at 644?

Everyone got the memo on how the fundamentals in Apple changed overnight, right?

The bull case is a plunge that holds around 1400.

Theoretically, I suppose a plunge that holds 1370 could be considered ,constructive, but I’m not convinced.

Given the double square-outs at September 14/1468 and October 4/5/1460, we could have a case of double trouble.

Several weeks ago, we couldn’t help but wonder if the Hunt for Red October would play out with a crash as the Jaws of Death snap shut between the trajectory of the indices jacked on Fed pixie dust and the reality of the world’s fading economies.

The market always does what it’s supposed to, but never when. This may be when.

'When' may coincide with the 5-year top, the 100-year top and the start of the 1987 crash, 300 months ago.

Eerily, 300 on the Square of 9 Chart is opposite, or vibrates off March 6, the 2009 low.

Click to enlarge

As W.D. Gann said, “When time is up, trend turns.”

So never say never. Just because they seem to have defied gravity doesn’t mean they’re going to continue to do so.

Sometimes they drift until they go off the cliff.

The edge of that cliff looks like 1430-1422. The precipice looks like 1370, the 2011 high.

Geometry backstops this idea.

From the 1267 S&P June low to the 1474 September top is a range of 207 points.

50% of the range ties to 1370-1371, proving the geometry of the recent high and the significance of this 1370 level.

So the prior peaks from April 2011 and April 2012 are key here and we are 180 degrees in time from the April 2012 high and 540 degrees (360 plus 180) from the 2011 peak.

Is it possible the S&P plunges to 1370 if it stabs below 1422?

Interestingly, the 50 dma currently ties to 1422 while the 200 dma ties to 1370.

A 50% retrace of the advance from last October’s 1074 low to our recent 1474 high gives 1274. This ties to the June 1267 low, once again proving the significance of the recent high.

Is it possible that the S&P plunges to a test of the June low if 1370 is violated with authority?

Is it possible this kind of a plunge plays out in October?

Of course, the best-laid plans of mice and Ben with his put in his holster have created the ‘What Me Worry Market’, right?

Of course, everyone can get out at once, right?

On Tuesday, the S&P broke and closed below a rising 3-point trendline, triggering a Rule of 4 sell signal. Bearishly, this break follows an ascending triangle with an overthrow above the upper trendline which often defines a buying climax.

The S&P looks like it has eyes wide shut for a kiss of its 50 dma and if that goes, pucker up for the 200.

If the 200 is lost, the cycles suggest the possibility of a round trip to the June low.

The Nasdaq (^IXIC), which often leads, has already snapped its 50 dma with authority. A Live Angle from the last breakout pivot ties to a test of the 200 dma. The confluence of the two suggests such a decline could play out quickly.

So looking at time-based studies, IF a waterfall decline is going to happen, when is the likely window?

If we assume that the September 14 peak at 1474 is the high, counting from September 14 gives a so-called Gann Death Zone of October 23 through the first week of December.

This is the Gann 49-55 day zone that defined the crash lows in both 1929 and 1987. This same count has defined numerous other declines of lesser amplitude.

Above, we noted that we are 300 months or 25 years from the start of the 1987 crash. While the crash itself tied to the week of October 19 to 23, the low CLOSE occurred on December 1. Note the above similar harmonics.

It is unknown whether September 14 will remain the high, but it is only 11 days from the anniversary of the September 3rd high in 1929.

That was 83 years ago. 83 ties to the week ending October 24.

Moreover, September 14 is 90 degrees square a price of 666.

Caution is warranted as a double square-out was scored on September 13/14 and again on October 4/5:

September 13/14 is opposite 1468 on the Square of 9 Wheel.

October 4/5 is opposite 1460 on the Square of 9 Wheel.

Click to enlarge

On September 14 , the S&P closed at 1465.77.

On October 4, the S&P closed at 1461.40.

Remember that these square-outs equate to a 90-degree overthrow from the key 1422-1430 area.

Why was this area key? 1422 was the April high of course. 1430 equates to a key 6 revolutions (or squares) of 360 degrees up from the 666 low.

As you recall, this “cube of 6 squares” is the precise relationship of the advance from the 768 low in 2002 to the 1576 high in 2007.

Conclusion. There are enough potentially pernicious vibrations to go around if we see downside acceleration once the monthlies turn down, leaving monthly Train Tracks. This would occur on trade below 1396.56. This ties to clear-cut support. If clear-cut support is broken, it’s time to get out of Dodge, given the time and price studies above.

Strategy. AAPL is the key and we walked through the set up in AAPL last week in the American Beauty report.

AAPL left a Bottoming Tail on Tuesday (from 270 degrees down) and may try to rally, leading the market back. However, AAPL looks like it has a date with destiny near 603-605 based on a Head & Shoulders top formation. This ties to a 360-degree decline. A backtest toward Monday’s gap and the 50 dma sets up a solid risk-to-reward short.

Form Reading Section

Recently, we noted the daily Charlie’s Angels topping pattern on LinkedIn (LNKD). This distribution pattern also carved out a Head & Shoulders top. On Tuesday, LNKD succumbed.

A 10-minute chart for 3 days shows the TNT or Thrust, Pause and Thrust pattern: After a thrust on Friday, LNKD paused on Monday followed by another thrust on Tuesday.

An down ORB (opening range breakdown) did a good job of identifying yesterday’s acceleration.

If you would like to be able to make the same kind of  time/price analysis based on the Square of Nine Wheel as offered above, you may be interested in purchasing a Square of Nine Wheel. I am offering a half-hour phone consultation where I walk through what I have discovered about the Wheel over the last 20 years.

Email for more information.
POSITION:  No positions in stocks mentioned.