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A Lone Chair on a High Wire Above a Fiscal Cliff
November 7, 2012 08:30 AM
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,
If I hear once more that now that we have ‘certainty’, the market can rally, I’m gonna puke.
The market was up solidly yesterday, and gave it all back in the futes during the night and was up as I started to write this piece this morning. Now, the futes are down 9 points again.
Whether any of this has anything to do with election results or Mercury going retro is anybody’s guess.
The popular averages have been mired in a near-term downtrend of lower lows and lower highs which is well documented by the daily
Two things stand out about the daily NDX in addition to the obvious lower highs and lower lows reflecting the traditional definition of a downtrend.
The rub is that the NDX also shows a possibly bullish 1 2 3 Swing to a test of a major moving average -- its rising 200 dma.
Whether or not this 3 drives to the 200 turns out to in fact be bullish and define an important low remains to be seen. But, the perception of that possibility was probably an important aspect of Monday’s rally.
When there are no new clear-cut fundamentals in a highly-charged emotional atmosphere, technicals will dominate.
It should not be lost on us that this 3 drives to the 200 is occurring in the week the Gann Crash Window ends.
Moreover, the NDX is not ‘V’ ing off its 200dma -- it shows a possible consolidation, a possible constructive Up, Down, Up Sequence.
The fly in the ointment may be that this could be a Bear Flag.
Does the market give this much time to be bought at a good low? Remember, in June we got a slingshot off the low.
For a speculator who is looking to hold a position for weeks to months, little is clarified by the election.
We must look to an understanding of the price and volume action of the averages and the leaders.
), has also declined to test its 200 dma.
Who would have thunk it one month ago that if AAPL was testing its 200 dma, that the
(^GSPC) would be holding well above its 200 dma.
I think most of us would have bet that if AAPL was at its 200 dma for the election, likewise the S&P would be testing its 200 dma.
Is this a positive divergence or does it indicate the S&P has some downside catching up to do?
That’s what makes this game so interesting and frustrating: once you think you’ve found the key, they change the lock.
The averages have been unable to cobble together more than a few days of rallying before succumbing to selling. Since the high, every time the 3 Day Chart turns up, it has defined a high.
This is exactly what occurred on Friday on a backtest of the 50 dma. The angle of attack following the sharp reversal from the 50 dma on Friday suggested downside follow-through early this week, especially with the Gann Crash Window on the clock.
Instead, remarkably, the Talented Mr. Market changed his persona, picking himself up by his bootstraps and rallying right when it looked like a turkey sitting on a fence.
Tuesday’s rally was a great example of what the market will do when it doesn’t follow the normal expectation.
But now that it has rallied sharply into resistance with the key 1445 square looming overhead
as shown in yesterday’s report
, what will it do for an encore?
Is it possible that it still plunges to its 200 dma even if a low for a rally into January (like the 40-year cycle suggests) is in the cards?
The simple answer is yes. I think this is still possible. Since the market was closed last Monday and Tuesday, the window for a short-term climatic washout may extend into the end of this week.
That said, yesterday’s rally looks like it reduces the chances of a plunge -- certainly unless 1415 is snapped again.
) with a 7 day lookback shows Tuesday’s quick trip to resistance. Now the SPY has carved out a little rising trendline. Trade below 141.50 (1415-ish cash) should see downside acceleration, especially if the SPY quickly rolls over from a double-spike top at is 50 dma.
Recapturing the 50 dma (now at 1435) and the 3-Day Chart pivot from Friday puts the S&P in a potentially strong position.
Recapturing a Bowtie of the 50/20 day moving averages at around 1435 and regaining the 1445 level which is opposite today’s date on the Square of 9 Wheel puts the S&P in a position to rally into year end/January.
However, checking the cycles shows that any breakout would probably be a false breakout in keeping with what happened in January 1973.
As my gnome reminds me, 8.6 years is a Pi Cycle.
8.6 years equals 3140 days for a perfected pi-business cycle.
A fractal 8.6 months (a Fibonacci 262 days) comprises 6 waves within each leg of the 8.6 year cycle.
5 waves of 8.6 months is 43 months.
From the all-time October 2007 S&P high to the important May 2011 peak was 43 months. The S&P crashed nearly 300 points from 1370 to 1100 in 3 months (90 degree angle, 90 degrees in time).
Now, from the big March 2009 low to October 2012 is also 43 months.
So I wouldn’t be so sure the market is poised to discount certainty just yet.
If Washington fiddles at the edge of the Fiscal Cliff, and the chair remains unbowed and inflexible at its second coronation, it could be a case of Fiscal Wallendas versus fiscal agendas.
Form Reading Section
) exploded of its 50 wk/200 dma on Tuesday on the 7th week from high.
Last week's bearish outside-down week failed to elicit follow-through and if last week's high is offset, SLV may have scored a good low and probably continues higher.
If SLV turns its weeklies up and rolls over declining below last week's low, it is a sign of the bear in the metal.
No positions in stocks mentioned.
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