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A Setup for Massive Failure?

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The S&P 500 (INDEXSP:.INX) at 1657 is 90 degrees square the big October 4 anniversary pivot. This is the anniversary of the October 4, 2011 low, 720 degrees ago in time. In addition, early October is the 11-year anniversary of the 2002 bear market low as well as the sixth anniversary of the 2007 top. October 4 also marked the last pivot high in 1987 prior to the slide that culminated with Black Monday, October 19, 1987. This was 26 years ago. As we noted last week, Gann-wise, it is alarming that 26 vibrates and aligns with October 28, which was one of the crash days in 1929 and that 1929 was 84 years ago (the explosive Uranus cycle) with 84 vibrating and aligning with October 19 -- the crash in 1987.
These three harmonics tie together this October. Of course, the vast majority of market participants are convinced that every pullback and every downside gap are buying opportunities. The big question players have to ask themselves is whether this bullish behavior has been an indication of natural, internal market strength or induced. Has the Street been force-fed this belief by virtue of Fed buy programs to the point where it has become self-fulfilling?
I can’t help but wonder if this belief won’t be shaken -- if the zombie-like march of the glamours and Internet Darlings 2.0 won’t be woken up by the dance of the zombies in Washington. The religion of momentum cuts both ways, often abruptly and without warning. Professional money managers can overlook many things, but it’s hard to overlook the coming debt deadline on October 17 and the fiasco in Washington -- especially with so many unrealized profits at the start of the final quarter of the year. Is the door big enough for everybody to get through at the same time this October? It wasn’t in October 1929 and in October 1987, both of which directly followed record runs to all-time highs.
Friday and today are 90 degrees square 1657, and the S&P 500 may be set to test this level following this morning’s hard gap. Perhaps it will be a successful test and another Monday buying opportunity. However, last Monday saw a large gap down through the 50-day moving average that saw the market claw back throughout the week. Could today be a case of the second bearish mouse getting the cheese?
As the daily S&P 500 from this morning’s Daily Market Report shows, this 1657ish level ties to last ditch intermediate support, a break of which demands a defensive position. The mid-point of the range from the June low to the September high ties to 1645. A 180 degree decline from the 1729.86 high ties to 1648. Acceleration below 1657 and then 1645 could cause the wheels to come off this October.
What makes this 1657ish level key?:
1) It entails a break of the May CLOSING high of 1669.
2) It snaps a trendline connecting the June low and the late August low.

3) It snaps a mid-channel line created by paralleling trendlines off a line connecting the May high, the August high, and the mid-September high.
Daily SPX from this Morning’s DMR:

The S&P 500 managed to claw out a nominal close above 1687 on Friday. 1687 is 90 degrees down from the record 1729 high as well as being the May peak. The takeaway is the poor price action directly following 1729 points to a possible false breakout and throw-over 90 degrees in price above the May high. These throw-overs are often indicative of market tops, just as undercuts often define market lows. Such was the case at the last major market pivots -- the October 2007 top was a throw-over of the primary high in July that year 90 degrees later IN TIME. The March ’09 low was an undercut of the November 2008 crash low with the momentum taking it just past 90 degrees in time and in price from the 741 S&P 500 November 21, 2008 low. And, of course, the big reset on October 4, 2011 was an undercut of that year's August low.
If the recent 1729 high was a false new high and an overthrow of the stampede into a May primary high, then it sets up the potential for a massive failure. This is the nature of false new highs and false new lows. Fast moves often come from false moves.
Above, we mentioned that we are at the 11-year anniversary of the 2002 bear market low as well as the sixth anniversary of the 2007 major top. On the Square of 9 Wheel, 11 and 6 are straight across and 180 degrees opposite each other. Importantly, they vector the date of September 19. This is the date of this year's record 1729 high.
Above, we noted the vibration off October 28 (the crash in 1929). As it happens, this year’s 1729 high is 90 degrees square October 28 AND 1687, the May high. In other words, 1729 POINTS to October 28, which was a crash 84 years ago as well POINTING to 1687 the May high.

Click to enlarge
In my experience of using the Square of 9 (which W.D. Gann relied heavily on a paper version of -- today there is a physical wheel) at major inflection points, time points to price and price points to time. When there are a cluster of these relationships, as there are currently, the likelihood of something major playing out is greater.

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POSITION:  No positions in stocks mentioned.