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The Tipping Point

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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.

Today, we’re going to let the charts speak for themselves.

Today and Monday culminate the Gann Crash Zone, which is roughly 55 calendar days from the high.

The current pattern is eerily analogous to the pattern of the crash in October 1987.

Since 1987, there have been a handful of patterns that mirror the 55 day count off high that show climactic selling, but not genuine crashes. It just hasn’t happened like in 1987. The President’s Working Group on Financial Markets was formed in 1987 after Ronald Reagan said, “I don’t know what that was, but don’t let it happen again”. The so-called Plunge Protection Team has done its job for the most part, stretching panics into slow-motion train crashes instead of 2 to 3 day pile-ups.

Whether today or the next few days sees a panic where players try to protect unrealized gains from 2012 remains to be seen.

In 1987, the S&P closed just below its 200 dma on Thursday. On Friday, the decline extended.

Then we got Black Monday.

In 2012, the S&P closed below its 200 dma yesterday on Thursday and looks set to extend.

A weekly S&P 500 (^GSPC) chart from the August 2011 low (October 2011 was a short-lived undercut) shows that a 14-month trendline ties to the 50 week moving average, which ties to around 1363.

Trade below this confluence of support also violates the 1370 level which is key because it is 50% of the range from the June low to the September high. 1370 is also last year's high.

So, trade below 1370 will ‘overbalance’ the S&P. It is the last ditch tipping point and we could crash to our primary target for this leg down, which is the quarterly low at 1325. This is the 3rd quarter low, the July 2012 low.

Conclusion. The Turning Point we forecast for September at our 1460 and 1468 square-outs has proved powerful. Whether they prove to have marked a high for a second leg down in the bear market (following the first leg down in 2008) or whether they marked the high for another correction that sees a new recovery high is unknown. However, the pattern of 3 drives up from the 2009 low looks like a big picture bearish backtest and the angle of attack to the downside is the sign of the bear.

We’re about to find out whether our warnings about the Gann Crash Window into this week will pan out with a further panicky waterfall decline.

I don’t enjoy writing or trading through bear markets, but they exist. They are part of the nature and character of the market just as Fall and Winter follow Spring and Summer.

It’s just that I believe it is important to look at and play both sides of the market. It’s important to sow and to reap.

And so, it is my hope that my readers position and protect themselves accordingly.

Form Reading Section

POSITION:  No positions in stocks mentioned.