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Feeling’s getting stronger
- I Want To Take You Higher (Sly and the Family Stone)
As you know, last Friday, December 14, was 90 degrees from the high of the year.
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The market pulled back closing on the low of the week.
Yesterday’s gap up that held after the first hour and then the FIRST Pullback which traced out a Plus One/Minus Two buy pattern was a tip-off to the explosive trend day.
While it would have been a picture-perfect setup if the S&P had turned its weeklies down with a little early weakness on trade below last week's low and then catapulting higher, the market doesn’t exist to offer picture-perfect setups.
So the tip off to a breakout above the key 1422 level occurred when it was clear that a first-hour opening spike high was not being made: note how the SPY extended smartly following a Topping Tail on the 10 minute chart just after the first hour. When that 10 minute outside bar up was offset, it implied higher prices.
A late pullback on an initial run towards resistance from last week's FOMC Cha Cha around 143.50 found a higher low and the SPY ripped into the bell.
Cyclically, we have walked through the time/price harmonics pointing to the significance of the mid-November low in this space several times.
In addition, the 90 degree cycle in time into December 1h marked a potential 3rd higher low or what I call a Power Surge pattern because it often times leads to quick and powerful surges in price.
So there was a good technical setup at hand. Despite the Death Cross on the NDX (^IXIC), Apple (Nasdaq:AAPL) was set up for a test of its mid-November low as well.
As noted in yesterday’s report, an undercut of the prior swing low in Apple, followed by a stab back up through the 505/506 November low set up AAPL for a rally and a possible Island Bottom on a gap to the upside on Tuesday with the pattern possibly mirroring the Island Top at the high in September.
This morning, pre-market, AAPL is gapping higher. Recapturing the key 526 pivot from which it collapsed last week puts the stock in a position to extend.
Likewise, Google (Nasdaq:GOOG) offset its reversal signal bar from last week. Both heavyweights could propel the point count and the psychology to a new high above the closing S&P high on the year.
That said, the market usually (but not always) offers a graceful exit and a nominal new high could be that graceful exit, so I wouldn’t overstay a new high into year-end as the market could reverse right back down just as easily in keeping with the false breakout in our cycle work to the false breakout in January 1973 which we’ve walked through many times.
This is the 40 -year cycle. Every 40 years in the market, something bad happens; every other 40 years something really bad seems to happen.
On the Square of 9 Wheel, 40 ties to ‘zero’ or March 21st and the Spring Equinox. Obviously, this is 90 degrees or square December 21/22.
Note that the price low of the DJIA (^DJI) following the crash in 1929 was around 40 intraday. So, this is a major vibration in the market in time and price.
Both the 40-week and 40-month cycle have been prominent for decades.
The bottom line is the market may be magnetized higher/hold up in this trading range until year-end but I think the behavior past then will be extremely important to observe.
A daily S&P shows the 3rd higher low set up into a Bowtie of the 50/20 day moving averages. As you can see, the December 14 low (the potential 90 degree cycle low) also ties to the bottom rail of a rising price channel.
Recently, we walked through the setup for the mother of all squeezes into the first quarter.
Whether Monday’s strength was an indication of this or a nominal new high remains to be seen.
However, continued strength past December 22 and the beginning of the new year indicates the S&P could be magnetized to a measured move to 1550-ish in the first quarter.
This measured move would mirror the 207 point S&P rally from June to September.
Likely, it would play out into mid-February which is 90 degrees from the mid-November low.
I think it is quite compelling that 1550 is opposite February 14 on the Square of 9 Wheel.
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Of course 1550 also ties to the primary high in July 2007.
So the question seems to be whether we see a nominal new high on any continuation from here which may mirror the pattern of the nominal new high in October 2007 (over the July high) or we get a run for the roses.
I think a partial answer to the question will be the behavior past December 22 as noted above and obviously the nature of momentum if the S&P should exceed this year’s closing 1466 high.
Remember that there were two major time/price square-outs in the fall at 1460 and 1468 so recapturing those levels with authority may well indicate a run above 1500.
As noted in the last report, recapturing 1422 put the S&P cash in a stronger position to attack this year’s highs which tie to the upper rail of the rising channel on the above daily S&P.
An overthrow of the channel to a new high on the year with a quick Spike & Reversal back into the channel is pattern that needs to be watched.
Conclusion. Bonds broke down big yesterday with the 10-Year Treasury Yield (^TNX) closing back above its 200 dma and threatening a sharp rally on a possible Rule of 4 buy signal on follow through above August, September, October peaks. The breakdown in bonds got the rally in stocks going and further downside follow-through in bonds probably also means they’re going to try for a new high in the S&P (above this year’s closing 1466 high). Interestingly, 1466 ties to December 14/15 since 1466 is 90 degrees square December 14/15. This underscores the potential significance of Friday’s low. What this means is that the stop now for the big picture on the long side is Friday’s December 14 low of 1411.
This sell bonds/buy stocks program is a well-known pattern and means that with any nominal new high Spike & Reversal pattern, we should also not overstay our welcome on the long side.
Form Reading Section
The daily Beam (BEAM) chart underscores a few interesting technical concepts:
1) Note how quickly the flushout to the low in November left a large range Bottoming Tail (Lizard buy signal) followed by an Up, Down, Up Sequence in keeping with the Principle of Tests.
Is this the same pattern being traced out in AAPL right now?
2) Note the continuation following a Rule of 4 Breakout above the August, September, and October pivot highs which coincided with a recapture of the 50 dma. Remembe,r the more evidence, the more weight a setup carries
3) Monday morning’s alert before the open flagged the Runaway 1 2 3 Pullback in BEAM. In other words, last weeks 1 2 3 Pullback was the first pullback since the explosion off the lows. First pullbacks in runaway moves are solid momentum continuation setups.