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Will Stocks Turn a Brighter Shade of Red?
January 14, 2014 10:15 AM
JEFF COOPER'S TECHNICAL BREAKDOWN
I was feeling kinda seasick
But the crowd called out for more
The room was humming harder as the ceiling flew away.
Reid, Brooker, "A Whiter Shade Of Pale"
Many people, not content with the forgetfulness provided by sleep in one common wish implore from nature's hand the nectar of oblivion.
In Greek mythology, Anthemoessa is said to have been the island home of the Sirens, from whence their plaintive songs drifted through the dark, luring sailors to their death on concealed jagged rocks. The doomed would subliminally understand the fatality of the draw towards the beautiful sounds but would, or could, not care to resist.
Every bull run has its glamour stocks that serve as anthems for those long stocks. Names in 2013 like
) underpinned the narrative of speculative sentiment.
Let's take a look at these Four Horsemen.
A weekly Netflix chart shows a vertical rise in 2013 followed by a recent break of its rising trendline. Netflix is flirting with its 20-week moving average, which has proven supportive.
Weekly Netflix Chart From 2013 to the Present:
Click to enlarge
Checking a daily Netflix chart from 2013 through present shows an authoritative break of its 50 DMA with the possibility of an air pocket down to 280-300.
Daily Netflix Chart with its 50 and 200 DMAs:
We have walked through the significance of the Apple early December square-out at 568-569 in this space. See
. Apple reversed up yesterday following a turn down in the important 3-Week Chart. However, it remains below its 50 DMA, and if Monday's low is snapped, the expectation is Apple will head lower. The potentially bearish picture in Apple is that it has traced out 3 swings to a lower high (the September 2012 all-time high).
Weekly Apple Chart from September 2012:
In the last few weeks, we walked through a trio of technicals pointing to a high and potential square-out in Amazon around 408.
See all three here:
Amazon Sqaure of 9
Bungle in the Jungle?
Who Said Technical Analysis Doesn't Work?
After scoring a new high on January 9 right in its presumed turning point window, Amazon is showing downside follow through from that signal reversal bar, closing below its 20 DMA on Monday. It looks set for a test of its 50 DMA this week.
Daily Amazon Chart from December to Present with its 20 and 50 DMAs:
A weekly Tesla chart from 2013 to present shows a vertical advance followed by a sharp break and a backtest to its overhead 20-week moving average.
Weekly Tesla Chart from 2013 to Present with its 20-week MA:
Click to enlarge
On Monday, Tesla drove through its 50 DMA. If the trend is bearish in Tesla, the move to the presumed 160ish breakdown point off the recent 119 square-out low defined an important high.
Daily Tesla Chart from September 2013 with its 50 DMA:
Are the recent pullbacks in these four glamours buying opportunities or will their piercing momentum in 2013 deafen investors to risk and volatility around the bend?
Following the great crash that bottomed in July 1932, there was a 5-year advance that ended in March 1937. It took Mr. Market 5 years to disabuse market participants of the trauma following the 1929 debacle. It took a two-year chorus of persistently rising prices from 1935 to 1937 to imbue a new sense of complacency. It's easy to imagine how shell-shocked investors were lured back into the market in early 1937 only to be smashed on the rocks rising in front of shores where permanent plateaus of prosperity meet 'this time is different' lagoons.
Click to enlarge
I can't help but wonder if in the midst of the 1935-1937, near-80% rally, players contemplated similar sirens skipping the light fandango echoed from the vertical two-year run from 1927 to 1929.
I can't help but wonder if the two-year, 70%-plus rally from October 2011 to December 2013 mirrors the last two years into the 1937 peak, when the Fed, having helped to steer the ship of state into the Great Depression, pulled down the sails believing it was a matter of "mission accomplished."
I can't help but wonder if a 5-year cycle from 2009 to 2014 is mirroring the 5-year cycle from 1932 to 1937. Other historical 5-year advances, such as that from 1982 through 1987 and that from 1995 through 2000, ended badly and suggest caution.
There is also a 13-year cycle that may exert its influence here.
From the 1929 peak, the bear market wasn't complete until 1942.
From the 1974 bear market low to 1987 is 13 years.
From 1987 to the 2000 peak is 13 years.
From 2000 to 2013 is 13 years.
As is often the case with the cause-and-effect system of cycles, there are layers of complexity in socio-cultural structures. The influence of the cycles is blurred. The distinction of the cycles is not unambiguous. In other words, only when the past is a whiter shade of pale will it be clear whether early 2013 marked a major low. Being 13 years from the major 2000 top, early 2013 may be proven to have defined the low for a new leg up for several more years, or late 2013 may have marked a momentous high.
The light fandango became a little heavy on Monday. The
(INDEXSP:.INX) suffered its worst one-day loss since the important October 9 low, closing convincingly below its 20 DMA.
Daily S&P 500Chart:
A change in character has been apparent since the beginning of 2014 as early strength has attracted sellers.
This behavior became pronounced on Monday.
10-min S&P 500 Chart for Monday:
It looks like a clean shot to 1800 and the prior swing highs, with 1807 being 90 degrees in price down from the all-time high. As offered yesterday, it would not be surprising to see the 180
SPDR S&P 500 ETF Trust
) strike tagged by Friday's option expiration. Theoretically, a 180-degree decline to 1765 could play out and still be considered a constructive decline, but below "Bernanke's Last Stand" low in mid-December is probably the Uncle Point for the bulls -- at least in the intermediate term.
It remains to be seen whether yesterday's carnage was the plug being pulled prior to a serious correction or bear market or just an options expiration raid. If the market is to mount another run-up to new highs, I think the 1800 level needs to hold in the short run. If it holds and the market turns up, an idealized nominal new high could be perfected at S&P 1865. This is because 1865 aligns and vectors October 9 on the Square of 9. October 9 was the recent major swing low, and often at major turning points, time points to price, and price points to time. That said, January 11 is the forty-first anniversary of the false new high in 1973, which was followed by a TWO-year, 50% decline. Forty-one ties to and aligns with
(the date of the 2009 low) on the Square of 9.
Square of 9 Wheel:
Click to enlarge
At the same time, a 3-week correction into late January could set up a run to higher highs into the 5-year anniversary of the March 2009 low. This is because late January aligns with 1646, the October 2013 low, and late January and early February are 90 degrees square a price of 1849 (the record high).
The market turned a brighter shade of red yesterday, illuminating the specter of the analogue of the final run up from October 1972 to January 1973. See
from past report.
In addition, the
(INDEXNASDAQ:NDX) shows a large-range outside down reversal day that snapped a rising trendline from the October low. Plain vanilla technicals suggest a defensive position until proven otherwise.
Daily NASDAQ-100 Chart:
A nominal new high may yet play out even if a significant top is forming, but as Robert Prechter says, "Many an opportunity has been lost waiting for one last rally or decline."
The mystery of the market is that although there are legions devoted to finding one, it doesn't need a reason, and although the truth is often plain to see, investors don't believe what they see.
The news breaks with the cycles, not the other way around. Believe what you see in the charts because the "reason," -- the "news" -- is "the mermaid that took King Neptune for a ride."
No positions in stocks mentioned.
IMPORTANT 3-WEEK CHART
ETF TRUST NYSEARCA
PRIOR SWING HIGHS
WEEKLY TESLA CHART
DAILY NETFLIX CHART
WEEKLY NETFLIX CHART
DAILY TESLA CHART
WEEKLY APPLE CHART
DAILY AMAZON CHART
20-WEEK MOVING AVERAGE
COMMON WISH IMPLORE
HISTORICAL 5-YEAR ADVANCES
NOMINAL NEW HIGH
POTENTIALLY BEARISH PICTURE
FALSE NEW HIGH
MAJOR SWING LOW
VERTICAL TWO-YEAR RUN
TECHNICAL ANALYSIS DOESN
160ISH BREAKDOWN POINT
PERSISTENTLY RISING PRICES
SIGNAL REVERSAL BAR
PLAIN VANILLA TECHNICALS
OPTIONS EXPIRATION RAID
WORST ONE-DAY LOSS
MAJOR TURNING POINTS
STRIKE TAGGED BY FRIDAY
EARLY DECEMBER SQUARE-OUT
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