Jeff Cooper: A ‘Biblical’ Move Just Put Tension on the Tape
So ‘they' bought the ICBM dip on Tuesday… before nuking tech on Wednesday.
I don't think it was an accident. As my dad used to say, “stocks don't move, they are moved.”
Tuesday's shrug of North Korea's biggest missile test yet followed by an UP open on Wednesday caught complacent bulls wrong-footed and blind-sided.
However, you know that the SOX was vulnerable.
The daily SOX we showed you indicated that a break below the prior 1332 high would trigger a Cascade setup:
I always say markets play out in 3's and the SOX had the look of a 3 day Island Top over the last few days.
This mirrored the pattern from early November which perpetuated a pullback to a rising trendline and the 20 day moving average.
A break below the support at the green trendline and the 20 day m.a. suggested a decline to 1250ish.
Yesterday, the SOX tumbled to 1252. I didn't know it would happen all in a few hours, but that's the nature of Cascade Setups.
The path to profits often follows the simplest route: a straight line.
It wasn't just Chips Ahoy on Wednesday, it was tech across the board that was under in discriminant selling pressure.
AAPL broke the handle of a mini Cup & Handle pattern, causing it to plunge, turning its 3 Day Chart back down. Notice the rapid flipping of the important 3 Day Chart this month. This indicates a potential change in trend.
A daily AAPL for 2017 shows the pullback is coming following a possible 3 Drives To A High pattern:
It looks like AAPL will be magnetized to a Bowtie of the lower rails of the channel and the 50 day line around the 160 strike. Below that, the 200 day (which hasn't been tested all year) near 150 comes into play.
On my Square of 9 Wheel, 90 degrees down from the 176 high ties to 163 and the above target zone.
180 degrees down ties to 151 and the 200 dma.
Consequently, a break of 163 that sticks implies an extension to 151.
151 is 90 degrees square December 21.
So there is a potential time/price square-out on the table that could exert its influence, pulling AAPL to 151ish into late December.
Notice the convergence of the upper rails of two channels at the record high.
Other techs taken to the woodshed on Wednesday's sell winners/buy laggards buy program include:
KLAC
ADSK
WDAY (note how Monday's Key Reversal Day defined WDAY's cliff dive)
NVDA (which knifed below its 50 day moving average on a huge expansion in volume
And of course, SHOP, which snowballed for us after our short alert on Monday night's report based on the Monday's Lizard sell signal (a new 10 day high Topping Tail):
On the other side of the coin, retail laggards such as DDS which showed some signs of accumulation, as flagged in yesterday morning's report, rocketed.
Other examples of the buy program in laggards include FL, BID, URBN, and ALK.
As the Good Book says, the first shall be last and the last first.
Yesterday's market truly was biblical. I can't remember ever seeing the NAZ down 118 points and the DJIA up 123 points — especially with the NAZ coming off an all-time record close on Tuesday.
This underpins the notion that the Algomatics had a program in their pocket. There was no news to account for the tech carnage- – which is more bearish.
Just as bearish was the up open, which disguised the pernicious selling in the wings.
The notion of a sell winners/buy laggards program flagged in this space in Wednesday morning's report played out in spades.
Yesterday's damage exemplifies that danger of the popularity of the ‘passive' posture by so many market participants. The virtuous circle of ETF buying gives way to an unvirtuous circle of selling — like a snake eating its tail.
Yesterday's selling in tech reveals the lack of liquidity accompanying a passive complexion — especially when it occurs weeks from year end when the vast majority are locked and loaded into year end and aren't inclined to be adding positions.
The bull hope is that yesterday's selling was month end rebalancing coupled with a fund(s) going out of business and tech will regain its composure.
Tech could bounce. But if it doesn't stick, my scenario for a break in December of a couple of weeks followed by a push in January is on the table. This is in keeping with my scenario that the 45-year Gann Cycle is at work from late 1972 to January 1973's major high.
Of course, this would do the most damage to those hoping to take some profits in the new tax year. Mr. Market doesn't like to accommodate.
Never make an investment decision based on tax consequences. If it's right to sell, it's the right time to sell.
The popular consensus is that the losers in 2017 would remain water-logged as no one wants to show them on the books.
However, Mr. Market has a perverse sense of humor.
The big losers on breakaways yesterday should be sells on rallies as they are under liquidation.
Conclusion.
A break back below 2600 SPX that holds demands defense.
A continued rally in the SPX could target 2704, which is the square of Gann's Square of 52 Chart, but that will only make the sirens of disparity and divergences in the market louder as the SOX looks like it has installed a signal reversal month.
Strategy.
Volatility is coming out of hibernation as we approach two key cycles outlined in this space, next week and early January which is the 45 year anniversary of the 1973 false breakout.
It is a dangerous time to be long too much, other than for intraday trades.
The 5th sequence of a 17 year cycle from the 1932 low may be culminating.
Each 17 year period had its own personality. From 1932 to 1949 it was volatility.
From 1949 to 1966, it was the go-go years of unbridled bullishness. From 1966 to 1983, it was digestion of the prior advance that played out with the deepest recession since the Great Depression.
From 1983 to 2000 the market once again showed unrestrained bullishness.
This final 17-year period from 2000 to 2017 marked another shift: the first decade following the New Millennium showed the worst performance for any decade in US history.
The 5th sequence of 17 years may be a final 5th wave in the sequence from 1932, a cycle of 85 years.
Caution is warranted.