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A New High for the Dow, With Some Fava Beans and a Nice Chianti

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I have squandered my resistance
For a pocket full of mumbles such are promises
All lies and jests
Still a man hears what he wants to hear
And disregards the rest

-The Boxer (Simon And Garfunkel)

The bulls ate Friday’s jobs numbers with some fava beans and a nice Chianti.

In this case, the fava beans are the frequent market-on-close designer buy programs, and the Chianti is QE.

As of late, the bulls haven’t met a piece of bad news they didn’t like.

How long is unsustainable sustainable?

Is there a limit to how deep heads can bury themselves in the sand?

If you keep digging, you get to China, as the old aphorism goes.

And, China can’t be too happy about the beggar thy neighbor policies in Japan and the US which mince Chinese holdings of these two countries' bonds.

I can’t help but wonder if North Korea’s war mongering is China’s way of saying, “say hello to my leetle friend!”

Perhaps the market is discounting the idea that the Fed and the ECB are watching the Japanese Origami Party with an intriguing sense of financial voyeurism.  If the Japanese version of ‘Rip Van Winkle Whatever It Takes’ works (better late than never?), one can only imagine that Peeping Ben and Peeping Mario will be eager beavers. While the dollar has been the lesser of many evils, that doesn't make it good. Hello FEDericka.

To wit, the dollar looks like it’s rolling over like a hot buttered croissant. And the way the metals sprang to life as the dollar softened up a little on Tuesday suggests they have been a coiled spring.

Silver (NYSEARCA:SLV) had one of its strongest days in 7 months on Tuesday.

SLV made a high in the first week of October 2012 and a low 90 degrees later in the first week January 2013.

In early April, 180 degrees from the October peak, it looks like the Gold Miners (NYSEARCA:GDX) scored a low right on schedule. Got geometry? Tuesday’s stab higher in SLV appears to confirm the notion of our high to low to low cycle.

I don’t believe these 90-degree decrements in time (and price) are happenstance. In fact, in 25 years of trading I’ve seen them play out time and time again. The Square of 9 Wheel does a great job of identifying these pivots and at what price a turn is likely to occur.

For example the closing high in October is 90 degrees or square last week’s April 4 low.

Recapturing the recent ledge just above 27 puts SLV in a strong position. Notably, 27 is opposite April 4 on the Wheel, seemingly confirming this as a key level.

The Monthly Swing Chart in SLV will turn up at 28.40. If it turns up, the subsequent price action will give us a good read on whether the trend has in fact turned up. Of course, trade above the March high (28.39) in SLV will leave an outside up month, another bullish indication a rally phase has begun.

Gold (NYSEARCA:GLD) rallied strongly following last weeks fresh 9 month low.

As offered in this space in recent days, a failure to follow through on the downside suggests a successful test of the February 20 spike low which we’ve been labeling a selling climax ever since then.

The GDX is rallying in tandem with the metals, a bullish sign.

In closing above the high of the April 4 low, GDX left a Volume Reversal buy signal on Tuesday. Why? Because April 3 was a large volume decliner and closing above the high of that bar implies that April 3rd was a selling climax in GDX.

Interestingly, the washout into April 3 backtested a Live Angle (red), which also suggests a picture-perfect area for a reversal to occur.

Now, GDX is flirting with a breakout over a declining trendline which will put it within striking distance of turning its monthlies up. This may play out as early as this week.

Conclusion. All is right with in the world of Hannibal Lecter Central Bankers as the DJIA (INDEXDJX:.DJI) tagged 14,700 for the first time ever on Tuesday, around 14,700 days from the false breakout in early January 1973. This was 483 months ago with 483 being 90 degrees square early January and 1470 (14,700 numerologically) aligning with the first week of March (the low in 2009).

So we have some powerful time/price harmonics at the DJIA’s new all-time high vibrating off the January 1973 false breakout and the March 2009 false breakdown (from the November 2008 low).

Strategy. The S&P (INDEXSP:.INX) shows 3 little drives higher since March 15. Although the reversal and momentum since Friday morning’s first-hour low clearly seem to be targeting a test of 1584, satisfying an idealized high 6 revs or squares up from 666, it is interesting that the S&P once again tailed off from 1573/1574 which is 90 degrees square April 9.

This may seem like voodoo, but this is the same kind of time/price relationship that we pointed to at the October 2007 high when 1576 was 90 degrees square October 8 and which we identified in March 2009 when 666 was 90 degrees square March 6.

That does not guarantee we are necessarily at a major turn right here, right now. This year’s rally has chewed up and spit out several seemingly important square-outs, just as it has shrugged off sell signals from many other methodologies. The important thing to understand is that while not all square-outs are major highs and lows, all significant highs and lows are square-outs. It is the ensuing price behavior in the coming days/weeks that will tell us if this is a major turning point.

That said, the Dow Transports (NYSEARCA:IYT) were actually down 19 points while the DJIA was up 60 points on Tuesday. So the DJIA is in new high territory, unconfirmed by the Transports.

At the same time, the IYT has turned its 3 Day Chart back up on Tuesday after it turned down for the first time in 2013 last week. If the trend is turning down, this turn up in the 3 Day Chart should define a high.

In addition, the Russell 2000 (INDEXRUSSELL:RUT) is in the Minus One/Plus Two sell position for the first time this year. Why? The 3 Day Chart is pointing down, followed by two consecutive daily higher highs.

Despite the new high on the DJIA and the S&P a whisker from a new all-time high, the NYSE % of stocks above their 50 day moving average is well below its 200 dma and its declining 50 dma.

What happens from here will be important and illuminating.

Editor's Note: This report was sent to subscribers to Jeff Cooper's Daily Market Report this morning. For a two-week FREE trial of his daily commentary and day and swing trading picks, click here.
POSITION:  No positions in stocks mentioned.