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October 18, 2013 10:35 AM
JEFF COOPER'S MARKET ANALYSIS
W.D. Gann, the legendary market player, was a believer that not only did price have memory but that so did time -- that the market vibrated off and respected historic highs and lows.
This past October 9 and 10 marked an important anniversary of course. It was the bear market low in 2002 and the bull market top in 2007. It was a major low in 1998 as well.
This past October 9, the
(INDEXSP:.INX) flushed its 50-day moving average, which, in a bull market, is often times how a low is made with the stops being run and bulls being shaken out. This is what occurred in late June and late August as well.
In the first week of October,
we noted that 1645 represented a 50% retrace of the prior range
-- the late August low to the mid-September top. In addition, we flagged the time and price harmonics in play:
1) On October 9, the S&P 500 satisfied a 180 degree decline from its record high at around 1645.
2) October 9 is 90 degrees square a price of 1655.
On that day, the S&P slid to 1646.47 before settling at 1656.40. The prior session, October 8, the S&P closed at 1655. In addition, on October 9, the
Dow Jones Industrial Average
tested its 200 DMA for the first time in 2013.
Typically, the first time the market satisfies an important technical, such as a test of the 200 DMA for the first time in a long time, it marks an inflection point. The behavior at the October 9 low exemplifies the idea of how it is the CLOSE that traders take home with them. The intraday low is always an important "vibration," but it is also important to consider what level holds at the close. Often times, it is the close that identifies picture-perfect square-outs of time and price, such as the one that occurred on the October 9 anniversary.
So, the market had a lot of technical tailwinds going for it just six trading days ago. In six sessions, the S&P ripped 87 points to a new all-time high of 1733.
Today is the seventh day of the rally. Often times, the seventh trading day marks a pivot high or low. If it coincides with major cycles, it can mark a major pivot high or low. Such was the case after the first break off the top in 1929 when a pivot high prior to a waterfall decline played out on the seventh day of rally.
The reason for bringing this up is that this time frame from October 17 to 28 marks another series of historic turning points, from the crash in 1987 to the crash days in 1929.
In addition, the end of October and the beginning of November are 90 degrees in time from this year’s important August 2 peak. This is the same relationship that played out between the July 2007 primary high and the October 2007 nominal new secondary high, 90 degrees later in time, not that the market must adhere to this relationship. However, for some time, we’ve been pointing to 1739 as a level that would fulfill a major objective. Why? On the Square of 9, 1739 is one full rev of 360 degrees in price above the 1576 high from October 2007.
Moreover, in the big picture, November marks 60 months from the primary low in November 2008. This mirrors the 60-month period from the October 2002 low to the October 2007 top. Importantly, from the March 2003 impulse when the new bull kicked off to the October 2007 top was a Fibonacci 55 months. From the March 2009 final low to October 2013 is also a Fibonacci 55 months.
Monthly SPX Chart from January 2002 to Present:
The ninth digit in the Fibonacci sequence is 55. Nine marks completion as it is the last whole number. Nine marks the last number on the first square on the Square of 9 Chart, which is how it gets its name.
Interestingly, on the Square of 9, the number 55 shows some interesting historic market geometry. The number 55 ties to the end of August and early September, which marked the final highs in 1929 and 1987, which preceded the largest crashes of the last century. Those crashes occurred 55 days from the highs. The number 55 is 90 degrees square May 22 and November 21. May 22 marked this year's momentum peak while November 21 was the crash low in 2008, being straight across and opposite May 22.
Square of 9 Charts:
Click to enlarge
Click to enlarge
So, the S&P 500 is set to satisfy a "natural" 90-degree point run on the seventh day of rally while fulfilling a long-standing objective. Cyclically, the market is in the midst of a cluster of potential minor and major turning points. On rare occasions, these turning points represent acceleration points. As offered
in yesterday’s report
, there is the possibility that the S&P drives through the upper channel of its Rising Wedge formation, satisfying a 3 Peaks and Dome top in 2013. That said, as the S&P chart from yesterday shows, a serious negative divergence is playing out as the index approaches its projected upper rail.
SPX Chart with RSI from Yesterday:
This Rising Wedge pattern is in play at the same time that there is a possible huge 13-year Megaphone Top formation on the clock.
The setup bears watching. Since it is such a potentially big turning point, it does not preclude the notion of a throw over of the channel and a blow-off spike into late October and early November.
Sentiment-wise, it is interesting that some bears seem to be capitulating here pointing to yesterday’s strong NYSE breadth of 4:1. However, following strongly trending runs, strong breadth can be a contrary sign, a sign of "all in."
In addition, the headline behind this week's new all-time highs is "Crisis Averted." This seems a picture-perfect backdrop for a market that is topping just as the headlines at the ’09 low was that there was no end in sight for the specter of a crisis that looked to run as deep and as long as that of the 1930s.
Has a crisis really been averted in Washington? Or did we just see the market celebrate the Mother of Feeble Kick the Can Down the Road?
Legendary investor Bernard Baruch stated, “Speculation is about anticipating the anticipators.” Cycles are the only discipline that allows one to anticipate market turns as opposed to react to them. Cycles may allow one to differentiate between just another pullback and what may be a major turning point. Such was the case this week in putting the pieces together in the precious metals for our projection of the possibility for a major higher low (to the late June low), which resulted in a large potential breakaway gap to the upside in gold and silver and the miners
. Of course, as always, follow through is key.
Time points to price, and price points to time. As a friend pointed out to me yesterday,
is 1687 days from the March ’09 low. 1687 was the May high. It will be very interesting to see what this time-and-price period means for the market. The tension is on the tape.
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