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“Belonging is the highest level on the pyramid of consciousness.” Wayne Dwyer
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds
Panic dominated the tape after Brexit.
With the SPX losing 1900 on the results there is a strong likelihood that Central Banks panicked perpetuating a stampede by under-invested institutions.
Evidence of panic on the part of ‘someone' is revealed by 90% of the advance from July 8 to July 20 occurring on overnight gaps as opposed to during regular market hours.
I submit that the fingerprints of Central Banks are all over this overnight action.
The SPX first tagged 2100 in February 2015, so the June Brexit Bottom came an important 18 months or 540 degrees in time from then.
We've discussed the significance of 540 degrees in time and price being true squares many times.
540 is a true square or cube as it is 90 degrees of a 6 sided square or cube (90 degrees X 6 sides= 540).
After an 1800 wide and loose trading range defined by 2100 on the upside (despite a few brief Pinocchio's above 2100)
Fear of missing out turned into a full-fledged panic on the July move above 2100.
Reports from the National Association of Active Investment Managers show institutional positions went from 75% to over 100% invested (margin) in just hours.
Levels over 100% have only occurred 3 times in the last decade.
The last time over 100 was in the summer of 2014 prior to a 200 point plunge into October.
Many measures of sentiment visa vis options and the smart money/dumb money index hit multi-year records.
If it walks like a panic and talks like a panic, it's a panic.
The history of what happens after summer panics in the market is not a happy one.
So, caution is warranted on any sell signal that sees FOLLOW THROUGH.
We may get that downside follow through today after what looked like a creep by the SPX back to its overhead 20 day line on the hourly.
Note there is a Boomerang sell signal in place on the little false breakout prior to an hourly Rule of 4 on expanding volume, so caution is warranted as Wednesday may have been a Pause Day with a push back below Tuesday's lows bring in sellers.
The SPX did recapture its 20 day moving average which could indicate a squeeze on tomorrows NFP number but they could stall out here on the 50% retrace of the recent drop into what are expected to be ugly employment numbers that will erase last months better than expected number.
Oils bounce from near critical levels perpetuated a bounce in stocks but as a daily XLE below shows a rally today above yesterday's highs will put the XLE in the Minus One/Plus Two sell position on a backtest of its 20/50 Bowtie (a convergence of the 20 and 50 day m.a.'s).
If this sell setup plays out and XLE turns back down it is dangerous with a big neckline looming just above 64.
The tape is bearish after record extremes in sentiment and trend internals with a sell signal produced from our key 2174 square-out level.
The next few days should prove whether 2174 nailed the top for the balance of the year or whether we just got a shakeout prior to a momentum move to new highs above 2200.