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Is It Time to Panic?

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Yesterday we went into some detail regarding the big picture in the SPX and GLD vis a vis the 3 Month Charts.

Today's report will be brief.

But remember that the message of the SPX 3 Month Chart is that a decline below November's low will trigger what should be a quite bearish monthly Reversal of a Reversal.

To recap, GLD should define a low in terms of time and price in the low 1200's if the bull is alive.

1208 gold aligns with mid-November.

Check out a daily GDXJ from the July pivot high this year.

It shows what looks like a complete 5 waves down.

Wave 1 down ended in early September

Wave 2 up ended on 9/22.

Wave 3 down ended on October 6.

Wave 4 up ended on November 2 (on a Pinocchio of its 50 day line) and it looks like the 3 day plunge into Friday culminated in a 5th wave bottom given the volume in the last 3 sessions.

Remember that 5th waves in commodities names can be more powerful than 3rd waves.

We certainly got a waterfall decline last week.

GDXJ may have carved out bullish Train Tracks on Monday.

It may take until December and the 1 year cycle from last years low to see some acceleration but we put our toe in the water on some starter positions in the group.

I think GDXJ has a good shot to retrace 50% of the post-election decline. This ties to a possible push to the overhead 200 day around 38.

From that point, GDXJ may retest current lows putting in a W Bottom.

There is a consensus that gold cannot rally with rising yields. However, as I often say, correlation kills. It is important to take every item on its own. Gold can and has rallied big league with rates rising — especially if the Fed is behind the curve.

Moreover, there are a cluster of Hindenburg Omen bearish signals on the table. These don't mean the market has to panic, they could point to a garden variety decline.

But with the recent sell-offs being iconic ‘buy the dip opportunities', I can't help but wonder whether a full-fledged panic that isn't an opportunity isn't in the wings.

To put these current Hindenburg Omens in perspective, we have to look at the current massive divergence in the A/D Line which as noted yesterday is larger than that at the 2007 top. Only the divergence at the 2000 top was greater.

At the same time, yesterday saw the largest number of new lows for the DJIA setting a new all-time high in history.

This is true on an absolute number basis and as a percentage of stocks traded.

This is not the picture of a healthy market.

How significant is this?

Since 2009 every new high in the DJIA was greeted with a 5 day average of new lows less than 25. Yesterday saw a reading of 330 new 12 month lows.

So this 8 year cycle mentioned in recent reports mirroring the 1921-1929 run is showing an important change in character.

It was also 8 years from the sell off top in 2000 to the 2008 selloff and we are 8 years from 2008.

In 2000 the A/D Line divergence consumed 18 months before the market buckled, similar to the current period.

The conventional wisdom is that the current dislocation in stocks is rotation, but the money running out of former tech glamours and into under-owned names points to there being no money coming in.

All the big funds were loaded to the gills in the FANGS and their ilk and their selling presents the picture of a two-wheeled wagon. The wheels are coming off.

The SPX has been rejected for 3 days running from this key 2170 to 2180 level.

Remember, 2170ish ties to 2 squares of 360 degrees up from the low of the year and 2180 ties to the number of weeks from the 1974 bear lows.

If we don't break out over 2200 soon, it looks like a trip down.

It will be important to observe the behavior on the first 1 to 2 days of lower daily lows and whether 2148 SPX holds.

At the same time, we pointed out that November 14 ties to the Gann Panic Window closing on the NAZ. This ties to 55 days from the NAZ September 22nd high.

Clearly, the NAZ and its leadership has been hit with indiscriminate selling.

Yesterday, one pundit offered that AMZN was a “lay up buy” here. I wonder why they weren't pounding the table as to it being a lay up sell before the election.

The conventional wisdom seems to be that this decline in the FANG's and the tech gang has been a buying opportunity, but as another money manager put it, “I hope it stops being an opportunity soon.”

The bottom line is a bounce could show up here in tech and former glamours ala the Gann Panic Window closing.

The behavior will crucial to see if it's just that — a bounce.

Additionally, yesterday we noted the Bottoming Tail on oil and we're seeing follow through pre-open.

So the SPX could get a tail wind from energy names and tech here. If this plays out and it doesn't perpetuate a decisive breakout, it is a red flag.

Click here for more information on Jeff Cooper's Daily Market Report