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Is the S&P Coiling for a Strong Move Up or Down?

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It has been three weeks since the S&P 500 (INDEXSP:.INX) peaked on December 31 (there was a nominal new high by 0.02 on January 15).

We are seven weeks from the fifth anniversary of the March 2009 low.

Markets have a strong tendency to play out in 3s and 7s.

So, this week looks pivotal. Is the S&P coiling for a strong move up or down into early March?

Is the Sleeping Giant going to awaken again, or does the Ice Man Cometh?

The sheer momentum of many high fliers, both up and down, aren't tipping their hand as to which way.

That said, the recent downside Gapism in many leading names of late such as Nu Skin Enterprises (NYSE:NUS) and Best Buy (NYSE:BBY) is probable cause for concern.

Additionally, when you see cheap stocks like Kingtone Wireless Solution (NASDAQ:KONE) more than triple in a day from 5 to 16, it's usually a sign that pigs are trying to fly. All apologies to Mrs. Konehead if there is one.

Daily Kingtone Wireless Solution Chart from December to Present:

The S&P rebounded sharply from last Monday's 1819, January 13 square-out (January 13 vectors 1819 on the Square of 9 Chart). It now shows a potentially bullish Plus-One/Minus-Two-buy setup with the index pulling back from a test of record highs for two days.

Daily S&P Chart:

Has the S&P carved out a misshapen Cup & Handle (bullish)?

So, with the first monthly options expiration over and with the market three weeks from high and seven weeks from a major cycle anniversary, the market looks coiled. Will the SPX respond constructively to the Plus-One/Minus-Two-buy setup, or was Wednesday a test failure of the December 31 high?

This is the position of the market that looms large over the January Indicator -- how the month of January finishes and how its historic role impacts the psychology for 2014 as a whole.

Remember also that the end of this week shapes up as a possible square-out with January 27 aligning with 1646, the October 9 low. January 27 is 90 degrees a price of 1865, which ties closely to 1865. 1865 is straight up from October 9.

So while higher highs may look like the giant is awakening again, there is impressive potential resistance at 1855 and 1865.

Of course, while the indices have largely been range-bound in 2014, the volatility in many individual names underscores the sheer two-sided momentum abounding of late.

Let's look at a few names.

Illumina (NASDAQ:ILMN) ran from 115 to 140 last week. Last Monday's reversal looked like a failure -- a test failure of the December 30 Topping Tail. However, once those highs were offset, Illumina exploded.

Daily Illumina Chart:

10-min Illumina Chart:

Fast moves often come from false moves.

Fast moves often come from failed patterns.

Interestingly, Illumina's explosive move on Tuesday followed a Plus-One/Minus-Two-buy setup. Why? This is because the prior two sessions traced out two consecutive lower lows while the 3-Day Chart was pointing up.

This is the same position the S&P is in currently. Will the bulls be able to capitalize on the pattern?

Stratasys (NASDAQ:SSYS) is a good example of what a buddy of mine calls the Ice Man pattern. It occurs as a stock breaks through a hole in the ice (support), and after struggling to pull itself out of the freezing water, it is only further weakened and sinks back for the count.

On Friday, we sent out a note to short Stratasys on a swing based on this pattern. Importantly, the turn up on the dailies on Thursday defined a high.

Daily Stratasys Chart:

10-min Stratasys Chart:

Qiwi (NASDAQ:QIWI) is another example of an Ice Man that played out last week.

On Friday morning, Qiwi turned its dailies up, putting it in the Ice Man position. This is a mirror image of the "T-D," or Touchdown bullish pattern, which is the first turn down on the dailies following a large upside impulse.

Daily Qiwi Chart:

10-min Qiwi Chart for Friday:

FireEye (NASDAQ:FEYE) exemplifies the upside momentum in the market despite the range-bound behavior in the indices.

FireEye was a long-trade idea from the January 14 nightly stock report based on the following session's "180," outside up signal bar. FireEye was in the first pullback following the large upside gap in December.

Daily FireEye Chart:

10-min FireEye Chart:

Another high-flyer, SolarCity (NASDAQ:SCTY), which in some quarters has been called the stock to watch in 2014, is not a name we are involved with currently, but it left a Gilligan sell signal on Friday. This is a gap up to a new 60-day high with a close at or near session lows.

Daily SolarCity Chart from October:

10-min SolarCity Chart for Thursday and Friday:

Note that SolarCity has rallied nearly 100% in less than two months. In fact, from the November 26 swing low to Friday's reversal ties to the end of Gann's 49-55-day blow-off zone. So, Thursday and Friday may have been a buying climax in SolarCity, at least in the near term. Note that the October 21 high in SolarCity was also a Gilligan sell signal, which was followed by a test to a nominal new high on November 4.

Since SolarCity and many of the solars are carrying the bullish baton, the action in this stock in January may be an important tell for the market. It may hold a key for continuation or fizzling of the rampant speculation of late.

Conclusion: While many stocks are creaming higher, there are also many stocks getting spanked. This should cause money managers to pull in their horns and take some profits in winners to soothe the pinch of the loses. This is human nature. Selling begets selling just as buying perpetuates buying. This is how a market can fall under its own weight without a definable catalyst. If you are waiting for the "news" to ring the dinner bell, I think the action of the market itself will better serve you -- price being the point of the sword.
POSITION:  No positions in stocks mentioned.