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Choppy Action

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This morning’s Daily Market Report, posted in its entirety below, walked through how yesterday’s ‘rebound’ from the extreme low on the futures on Globex pre-open may have indicated resiliency and seemed impressive, but as noted in the prior day’s report, only entirely offsetting Wednesday’s decline and stealth sell signal (an outside down day in the SPY (NYSEARCA:SPY) from a new all-time high), was needed to avert downside follow through.

A close below the May peak at 1687 on the important Friday weekly closing basis following a marginal new swing high (above the May high), just as did the July/October pattern top which also showed around an 10 to 11 week period between peaks-- just like the period between the May high and the end of July 2013.

A close below the key 1666 square-out on the important Friday weekly closing basis suggests caution and a possible plunge to 1600 or lower, especially if a test of the 50 dma fails.

The Fed’s brilliance does not determine the market, the social mood behind the market determines the Fed’s brilliance.
-Robert Prechter

Inflation is a dishonest act on the part of the government. We are in the midst of the greatest monetary crime ever known. We are impoverishing ourselves and most especially those who cannot afford financial distress. The dire consequences are beyond anything your imagination can conjure up. It will be the greatest collapse, the greatest crisis and the greatest punishment in history.
-Jim Cook

The futes traded at their extreme low of the day pre-open on Globex and came all the way back to close unched. This was the exact opposite of Wednesday’s action, which SHOULD mean they are going to try for the 1700 close on the important Friday weekly closing basis.

However, the sell-off in the futes pre-open may mean they are struggling to liquidate part of a portfolio (perhaps in fear SAC Capital will dump a few billion dollars on the tape, driving the S&P 500 (INDEXSP:.INX) down to 1600), and coming back to unchanged may just mean the seller(s) has limit orders. Opening on the extreme and coming all the way back to close on the high may mean they have a market on close buy program in their pocket for a Friday close at 1700. But, this was the pattern from the late May top, so unless there is big upside momentum on Friday, we have to be careful. If Friday is an up-day, maybe Thursday’s rebound was the real deal, but follow through is key, and if the market falters and breaks Thursday’s lows, an unexpected, sizable down-day could play out with the street wrong-footed for the record Friday close.

Yesterday, we noted that Wednesday’s decline would need to be offset entirely quickly in order to dispel the idea of a stealth sell signal on the SPX. Wednesday’s decline was not entirely offset, but the market came back enough to keep players guessing.

The weakness on the open looked like a confirmation of a sell signal telegraphing a down  trend day. While the market came back, it didn’t really offset Wednesday’s decline, keeping players in suspense in the midst of earning’s whipsaws in individual glamours.

Following Baidu's (NASDAQ:BIDU) and Facebook's (NASDAQ:FB) explosive gains, this morning we have Amazon (NASDAQ:AMZN) getting hit with what looks to be a Reversal of a Reversal. In other words, yesterday’s outside up day is being snapped as I write this hours before the open.


The S&P looks tired just below 1700, and it may be more than happenstance.

A friend pinged me that from the March ’09 low of 666 to the July 23 high of 1698.80 is a range of 1032 points, and that 1032 is 90 degrees square of July 23.

In addition to time and price squaring out, this may be an example of a square-out of the range.

This occurring in the center of our cycle window puts us on high alert.

Despite the tasty earnings gains on several names this week, it is important to remember that typically, the largest gains occur at the tail end of persistent runs. Be careful of chasing what may be buying climaxes.

Upspikes in this cycle window may be a tell tale sign of stocks burning out.

GLD (NYSEARCA:GLD) pulled back from the expected 130 initial resistance and tagged a rising trendline on the 30 min chart into Gap Window.

We want to watch a possible rally to around 129.50 into the downside gap from Wednesday.

If GLD snaps the little rising trendline, an A B C retracement may be playing out in which Gapfill is satisfied.

That said, GDX (NYSEARCA:GDX) shows 4 closes over its 50 dma and may be tracing out a Bull Flag.

Agnico-Eagle Mines (NYSE:AEM) spiked nicely following a little undercut of Wednesday’s low and shows a 1 2 3 Swing Pullback to a test of short term support.

Conclusion.  If they start up and are quiet and creep higher, the agenda is probably a 1700 or so close, but given this week's square-out of the range of the last 4 years Cplus, caution is warranted if they start down and stay down.

The SPX is in the daily Plus One/Minus Two Buy position with two consecutive lower lows. This is only the second time this potentially constructive pattern has played out in July, the first time being on July 3rd. A failure to see traction may indicate the runaway move from July 3 needs, at the very least, to inhale.

Even in the most bullish of cases a pullback to 1650-ish SPX and the 50 dma may play out; however, the enigma here is that any authoritative stab back below the May high of 1687 and meaningful violation of the May 1666 square-out could indicate a test failure of the May high.

It looks like our early August turning point (centered on August 8) will offer an important resolution.

Editor's Note: This article 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.

POSITION:  No positions in stocks mentioned.