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Jeff Cooper: Why It’s Time for Extreme Caution

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“At the end it became quite complicated but at the beginning it was simple.”
-Paul McCartney

“This is our journey and things have been put in place inside of our consciousness.”
-John Lennon

There are markers across the mystery of the social panorama that over time become larger than life.

An explosion in the culture and popular phenomenon happened on the scene when the Beatles' first album was released in November 1963.

This was 54 years ago.

The whole world lit up for the baby Boomer generation. No one knew the  revolution that was dawning.

Just as in the financial markets, when a revelation is taking place, you don't know it right away.

The tectonic shift in popular culture spearheaded by the Beatles began 55 years ago.

This is an important number for Gann students.

It ties to his so-called Death Zone in days.

For example, the two greatest crashes in the history of the U.S. stock market played out 55 to 56 days from the high.

Gann knew that this 55 number applied to weeks, months and years as well.

55, of course, is a Fibonacci number.

Just as 2584 is (as in 2584 SPX).

55 years ago in 1962, the market crashed in May.

54 years from 1929 saw the DJIA finally breakout over 1000 for good.

55 months ago was April 2013. That month the SPX cleared its October 2007 high for the first time since the crisis.

55 months before April 2013 was the historic waterfall when Lehman went belly-up.

55 weeks ago was mid-October 2016 which ties to the major early November 2016 low.

The high for the SPX so far occurred on November 7.

55 trading days prior was the important August 21, 2017 low.

Click to enlarge

55 is 90 degrees square November 21, the low around the world and in the big stocks in the U.S. in 2008.

Interestingly, 55 ties to August 21st, the date of this years Great American Eclipse.

We are within a week of the 9th anniversary of the November 21, '08 crash low.

In the scheme of things, + or – a week in a 9-year period is nothing.

I can't help but wonder if a major market vibration is playing out into this square-out of August 21, the eclipse and the last major market low at 2417 SPX.

The SPX is up a 180 points in roughly 90 days/degrees going into this November 21 square-out.

Those of you who have read my first book, Hit & Run Trading, know the story about how in 1962 my dad was on margin in stocks and our family lost a fortune.

We had to move back East, but fortunately, my dad had what it took to start again and succeed.

To him, 1962 was reminiscent to him of the 1929 crash, which occurred when he was coming of age at 16 years old.

1963, when the Beatles rocketed to fame, was also the year that JFK was assassinated amid the acceleration of civil rights tensions in the U.S.

Civil strife and deep divisions have broken out across the country in the last year.

Trump became President this year and there are some remarkable similarities between Trump and Kennedy.

Both men had/have tremendous wealth and privilege but are not dilettantes. Kennedy was considered a man of the people, as is Trump to many.

The Baby Boomer generation that came of age with the Beatles is retiring.

At the same time this 54-55 year social cycle is on the table there is a 17-year cycle we've mentioned in this space several times since last year which has exerted its influence since 1898.

The periodicity shows powerful secular turning points:

1898, 1915, 1932, 1949 (secular bull market begins), 1966 (secular bear market begins), 1983 (breakout over 1000 DJIA after 1982 price low), 2000 (secular bull top).

Here we are in 2017.

Not only was the 17-year cycle on the table here but this is a year slated for danger as it is also a year ending in 7.

Instead of a rout, something that has never happened before in the history of the market has occurred.

The market has now gone one year without a 3% or greater correction.

I can't help but wonder whether the Fed's Applause Meter, the stock market, has been rescued by the central bank every time it looked like the market was going to embark on a genuine correction this year.

After all, higher asset prices are all the Fed can point to in the last 8 years. At the same time, the new President is what some academics and others may call a loose cannon, or a least an unknown political entity.

Perhaps the Fed didn't want to risk finding out what psychology could elicit in a potential danger year like 2017.

Remember, when fundamentals and technicals play secondary roles in sentiment and psychology as is the case currently, anything can happen and usually does.

It would be naïve to think the Fed was not aware of what bearish technicians and cycle analysts are thinking about the markets.

With 2017 set up to be a year of potential danger, is it possible the Fed bent over backward to ensure psychology did not get a flesh would that could be exacerbated this year?

Whether that means the indices will remain buoyant into year-end, I don't know, but many stocks are already showing air pockets to the downside in November.

Since the SPX has gone a year without a 3% correction — something which normally occurs three times a year — I would not be surprised to see a reversion to the mean where a 9% or so correction plays out in a quick downdraft.

Again whether this happens this year or the market can tread water until year-end a la 2007, I don't know.

A 9% sell-off from current levels ties to 230 points or 2370 SPX, near the 50 week moving average — last tested one year ago. There's some good symmetry with this one year cycle on the table here.

Let's look at the DJ Transports which hasn't seen a new high in a month when it left a Gilligan sell signal and a Key Reversal day on the October 13 all-time high:

In addition to the multiple sell signals on October 13, the Transports traced out a little Head & Shoulders topping pattern on the overthrow of a channel that had dominated the price action throughout 2017.

Last week, the Transports closed convincingly below its 50 day moving average and as occurred the last two instances this year, a test or undercut of the 200 dma followed.

It looks like a test of the bottom rail of 2017's parallel channel is in the cards — where the red and green trendlines converge.

The problem is whenever this should happen, the implication is lower prices.

Why?

Because the lower rail of the channel has been tested three times already this year.

You don't find many quadruple bottoms. The 4th time through a 3 point trendline typically elicits accelerated momentum.

If the Transports break with authority, I don't think they are going to be doing a solo trip lower.

The likelihood is the DJIA and the SPX will be on the ropes as well at that point.

As it is, the RUT, as shown last week, has turned its 3 Day Chart down and is perched on its 50 day line.

If the RUT doesn't get traction at this inflection point, if it's not going up, it's probably going down.

At the same time, the SOX is finally approaching the top it set 17 years ago in 2000.

On March 10, 2000 the SOX registered an all-time closing high of 1332.

Friday's close was 1303.

As long-time readers know, 2482 SPX was an important level in my work.

2482 is 12 revs or squares of 360 degrees up from the 666 low.

In June 2007, I forecast that the SPX should top out at 1576.

This is because 1576 was precisely 6 squares up from the 2002 bear market low of 768.

The presumption was 12 squares up would be significant resistance.

What I did not realize until earlier this year is that the pre-crash pivot high in May 2008 at 1440ish SPX saw a crash of 6 squares.

So this is where the geometry came into play.

Take a look at your long-term charts and you'll see the significance of the May 2008 1440ish level.

Importantly, the November 21 crash low in 2008 is 180 degrees straight across and opposite the May 20 high in '08.

The 9th anniversary of this 2008 crash low promises to be pivotal (it's always plus or minus 1 to 3 weeks).

The SPX respected 2482 for 6 weeks and broke out in early September. The market was talking.

Now it has pushed 180 degrees higher.

It may be just a 180-degree overthrow of the 2482 idealized projection.

However, momentum above last weeks highs implies a full 360 degree advance above 2482 is on the table. This translates to 2685.

That said as flagged last week, it is worth noting that a time/price square-out played out last week at just below 2600.

If the SPX rallies with authority above 2600 it is also interesting that 2672 is 6 revolutions of 360 degrees above the 2007 peak of 1576.

As you can see on further strength there is a convergence between 2670 and 2685 if a last-ditch run plays out.

Be that as it may,  the DJIA made high last week of 23,602.

Dropping a decimal to work with my Square of 9 Wheel, we get 236.

One good day on the DJIA would see 27,000.

Remarkably 237 is 90 degrees square November 23, near the 9th anniversary of the primary low in 2008 (On November 21, 2008).

237 also aligns with August 25, the high day in 1987.

All these numbers vibrate off 2590 SPX.

Whether the DJIA rallies another 100 points or not over the next week seems irrelevant.

Extreme caution is warranted here as we are close enough.

Having satisfied 23,600, we see that 236 aligns with September 3, the high in 1929.


Click to enlarge

When in doubt, the A/D Line is the litmus test of technical indicators.

The A/D Line churned for 3 weeks into early October.

In the past that has called major turning points when the market and the  A/D Line follows through two to three days to the downside. This occurred in 1961 prior to a high and in 1966.

The last time it occurred before that was in late July 1929, five weeks before a historic top.

Similarly, we are currently five weeks from the window of this churning pattern.

Of course, when the pattern showed up in July 1929, the DJIA moved another 10% higher.

However, it was a good signal as the ensuing decline saw a loss of 90%.

Conclusion.

Money managers may be able to keep the market from getting shaken up through year-end in order to capture bonuses a la 2007.

But with unrealized gains begging to be captured, a market that has not experienced a 3% correction in a year is vulnerable to nervousness breaking out… rather than the SPX breaking out over 2600.

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