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Hanging Fire

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Following Thursday’s Bottoming Tail after an undercut of the September low, stocks tried for the upside on Friday.

The attempt failed as the SPX was rejected from our key 2148 level.

The SPX retraced all Thursday’s gains as it tailed off after turning its Daily Swing Chart up.

The market is acting bearish as the SPX skates below its 50 day line.

It looks like the SPX has been struggling to stay above the ice after plunging on September 9 and is tired and on the cusp of going down for the count.

Every one to two day turn up since the September 9 break has seen the index falter and looks like distribution.

Snapping Thursday’s tail now would confirm sellers have taken control.

On the Friday weekly closing basis, the SPX closed just below what I believe is the primary high in this cycle from May 2015 at 2134.

In so doing it also closed below a 3 point rising trendline for the year.

index_spx_w-sp-500-index-delay15-101416

The index tested the triple tops at 2120ish on the September break but the ensuing rally attempt did not generate a new high.

Now we have a another test of 2120 on the table and it looks like the second mouse will get the cheese for the bears on downside follow through.

Trade below the important 2100 Maginot Line could see the index drop quickly 100 points to the Brexit Low near 2000 SPX.

2100 is the line in the sand because 3600 degrees or 10 cycles of 360 degrees up from the ’09 low is 2100.

The all time high represents a possible 180 degree overthrow. The all time high is straight across and opposite the 666 bear market low.

Consequently, the push above 2100 and the May 2015 high may define a Bull Trap if the index knifes back below 2100.

Interestingly, the SPX has spent 90 days/degrees above the July breakout. Time may be up.

It certainly looked like this was the case last August when the SPX buckled from the push over 2100 and failed big again in January following a backtest of the key 2100 level.

But now, the index may have carved out what is a very bearish pattern of a 3 Peaks and Dome Top.

This time around is important because, we are 540 degrees/days from the May 2015 high come November.

Of course November is the election and the 8th anniversary of the ’08 crash low.

Conclusion. The SPX is in the Monthly Plus One/Minus Two buy position. Trade below the October low in November will turn the important 3 Month Chart down.

The index should respond bullishly to the Monthly Plus One/Minus Two if the trend is genuinely up after the breakout in July.  Be that as it may, if the 3 Month Chart turns down in November and does not define a low, we should see accelerated momentum to the downside.

Turns in the 3 Month Chart are critical. Interestingly the 3 Month Chart did not turn down at all from 2003 until NOVEMBER 2008 which marked the bottom around the world. March ’09 was an undercut low.

Importantly, the 3 Month Chart on the SPX turned down in July 2010 marking an important low.

The next time it turned down was in August 2015 when the biggest one day point drop in the SPX ever played out.

That looks like a shot over the bow.

We are 14 months from August 2015 and 14 weeks from the July 2016 breakout.

Another turn down now in the 3 Month Chart could echo August 2015 and November 2008.

We will walk through the historic  action of the 3 Month Chart in tomorrow’s report.

Strategy. The SPX left an outside down reversal week last week with a close below its 20 week line. Caution is warranted.