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Jeff Cooper: Indiscriminate Buying Begets Indiscriminate Selling


Sometimes technical analysis and time cycle work set up in a very compelling manner.

Editor's Note: This is a special free edition of Jeff Cooper's Daily Market Report:

The presumption from yesterday's report was that a break of the SPX' 20 dma would perpetuate a test of the 50 day and the Yellen Low.

Following a series of tests of morning lows by the SPX, I sent a note [subscription required] saying "my gut is a trend day to the downside."

Sometimes the mills of the trading gods grind fast in your favor.

While Jungian psychology holds that 90% of the time, we don't know why we're doing what we're doing (which explains a lot about market gyrations), sometimes technicals and cycles set up in a very compelling manner.

This month, we've sounded the alarm that something big could occur during a remarkable cluster of cycles beginning in March through April, and that caution is warranted.

I don't know what that something big is, but my intuition says that the market may be on the verge of crossing the Rubicon of Risk.

With oil crossing its 50 day line, I can't help but wonder if a supply shock is in the wind.

There is buzz on the street that Iran, backed by Russia, will put troops into Yemen. The Saudis entered the fray this morning. Putin may have something up his sleeve because he wants the price of oil up and so may want a conflagration in the Middle East.

There was no panic out there judging by the folks I heard on the financial media.

There should have been with money managers being forced to drink blood from a fire hydrant.

Instead, they were talking about how there is no way the bull market is over until at least the end of 2016.

How do they know that?

They don't. Their books demand they say that -- especially into quarter-end.

Remarkably, the biotechs and semis plunged the day after the anniversary of the market top in the year 2000. That was 15 years ago or a geometric 180 months.

We've mentioned several times that April is a geometric 90 months from the October 2007 peak and should be a major inflection point.

This could be a high, low, or point of acceleration.

After yesterday, it's looking less and less like a new high.

Moreover, the Gann Panic Window now looks like it will stay open through the most critical period -- April -- as long as there continue to be lower lows counting from the February 25 SPX record high.

Yesterday went a long way in keeping that  Gann Window open.

Moreover, the DJIA has carved out a weekly Broadening Top starting in early December and culminating on the first week of March when the DJIA left a Key Reversal Week -- a new 52 week high followed by a close below the prior week's low.

Interestingly, the Key Reversal Week occurred on the 6th anniversary of the 2009 low.

W.D. Gann was a strong believer in anniversary dates (+ or - a week).

For example, note the two biggest crashes in history: the pre-crash high in 1929 was September 3. The pre-crash high in 1987 was on August 25.

The bear market low in 2002 was around October 10, after which the bull market peak in 2007 was October 11.

The Transports topped in late November around the anniversary of the November '08 crash low.

Have the SPX and DJIA carved out important tops around the anniversary of the 2000 top and the 2009 low?

In regards to April being 90 geometric months from the high, remember that the fall of 2012 was 120 months from the 2002 bear market low and 60 geometric months from the 2007 bull high.

Six years is an important cycle. It is 6 revolutions of 360 degrees. Hence, this 'squares' the circle since a true square is a 6 sided cube.

6 years is 72 months or half a Fibonacci 144 months.

144 months ago in March 2003, the market made a secondary low 5 months after the primary low and kicked off a bull advance.

Has the SPX set a secondary high in February 5 months following the important September 2014 peak, potentially carving out a mirror-image foldback pattern?

Remember, following the September peak, the market waterfalled into mid-October. Is the market going to mirror that action with a waterfall into mid-April 180 degrees forward?

Most of what I heard about Monday and Tuesday's action was that it just innocent drifting downward movement -- a pause before the certainty of new highs. The story was the volume was much lower than average indicating we were just getting a bit of profit taking -- not to worry, we weren't going to see any panicky selling.

Few seemed concerned about  Friday's large range signal bar reversal in the leading IBB.

You know differently. You know that the IBB had a time/price square-out last Friday at 370 based on the Square of 9 Calculator.

The value of this extraordinary tool is that it marries time and price. The theory of time/price square-outs is that when time and price align, trend can turn sharply.

Said another way, time points to price, and price points to time.

Wednesday's plunge points to the fact that trendlines, moving averages and other traditional technical methods fail to employ TIME. And, it is time that turns trend.

We know that the SPX had a time/price square-out at 2119 at the end of February so last week may have carved out a test failure of that high or a double top.

Additionally, the SPX also shows a 5 point Broadening or Megaphone Top from November through February.

Last Wednesday's large-range outside up day failed to perpetuate follow-through. Follow-through is key.

Now the SPX has stabbed below last Wednesday's Yellen Low, losing its 50 day m.a. in the process.

The index is precariously perched on a close only trendline connecting last October's lows with recent swing lows. Theoretically, the SPX may be at another higher low but authoritative trade below this 3 point trendline will trigger a Rule of 4 Sell signal. Given the pattern of the Megaphone Top and the cluster of cycles potentially set to exert their downside influence, I would not underestimate the nature of downside risk here.

If the above trendline is violated, the presumption is a test of the 200 day moving average. This ties to triple bottoms around 2000 SPX.

A meaningful break of 2000 means the SPX will see a failure of prior resistance (the September peaks) to act as new support.

Given that there have been several probes of the September highs around 2000 already, there is a strong likelihood that the next break could lead to a 10 to 20% sell-off.

The market hasn't had a 20% correction in years. A 20% correction off recent highs ties to a test of the yearly lows -- the 2014 lows around 1738. The Yearly Swing Chart has been pointing up for years and may be set to turn down.

The Transports underscore the weak position of the market. They topped out in late November setting a series of lower highs and leaving a non-confirmation with the SPX' late February record high.

The Transports were the tip-off to yesterday's carnage. On Monday, the Transports had a large distribution day holding up at the 50 day line followed by a Pause Day on Tuesday. On Wednesday, a TNT setup played out -- Monday's impulse or thrust lower followed by a pause on Tuesday followed by another thrust lower yesterday.

Note that the SPX finds itself in much the same position as the Transports were on Monday -- closing at the Yellen Low right at the 50 day m.a.

Is there any reason to think the SPX won't follow suit and snap its 50 day?

The Transports are verging on a break of triple bottoms and its 200 day moving average on the important Friday weekly closing basis. No matter how bullish you may be, if that occurs, I would wait for the dust to settle before being a hero.

Conclusion. I have been concerned that if last Wednesday's Yellen Low in the SPX was breached, a panic could hit.

It could mean the Fed blinking last week was the straw that broke the bulls back.

If Janet's cooing turns the market sour, the question may be what's to stick around for? And players may rush to get out of Dodge.

What's the 'new' Fed meme going to be? The bulls have been in the Fed's corral for 6 years. If those fences are broken, what's the new story?

Or, perhaps this is just a good old fashioned 'buy 'em to bang 'em' in front of quarter-end.

As suggested a few days ago, sometimes a really big fund will chase bids with abandon a few weeks before quarter-end, forcing their competition to chase while the fund feeds out stock to them with discretion only to hit bids indiscriminately right in front of quarter-end, causing their competition to get caught wrong-footed and suffer in terms of relative performance.

I didn't sense real panic on Wednesday. Instead, most of what I heard was what a great buying opportunity this will be -- just as it has been every other time. 

It's possible but one of the problems is that every pullback for years has been short and sharp, and that players haven't been tested by a really deep correction that plays out in time as much as price. This has created a lot of complacency when downturns show up.

Crashes come from too much complacency, not from too much bullishness. This is the legacy the Fed has promulgated for itself this century. And, it hasn't led to happy endings.

Strategy. If we get a big down open, the odds are, carryover shorts from Wednesday's debacle will cover something and bulls will step in to protect the baby. Be that as it may, unless Wednesday's range is almost entirely offset today/Friday, the market remains suspect. I would not carry longs home (aside from energies and miners) into Friday and I would wait to see what plays early next week.

P.S. I offer a physical Square of 9 Calculator for purchase which which includes a personal consultation on how to use it.
If you are interested, please contact me at

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Twitter: @JeffCooperLive

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