Goldilocks Gets Botox
The last report showed the SPX perched on a rising 3 point trendline from the last swing low on November 15.
Thursday’s action cut through the prior swing high from December 4 creating the set up for a possible Bull Trap; however, as you know, follow through is key.
There was no downside follow through. The trendline held and Friday’s quadruple witch expiry and rebalancing of the SPX resulted in a Gap & Go Day.
Friday’s upside gap was followed by a brief consolidation after which an Opening Range Breakout (ORB) delivered a strong trend day.
In the process, the SPX, set a new all-time high on the highest volume day of the year.
Be that as it may, the SPX failed to move by greater than 1% on Friday (the advance was .90%).
In fact, Friday was the 68th trading day in which the SPX has failed to move by more than 1% (either up or down).
Think of the market as a beast that breathes. It inhales and exhales volatility.
Periods of contraction in range are followed by periods of expansion in range.
The current 68 day period without a greater than 1% move is the longest period without such a move in at least 20 years.
Periods of contraction are associated with calm and complacency in the market while periods of expansion of range are associated with distress and concern.
Given the extraordinarily long period of calm coupled with the current historic 13 month period without a more than 3% correction, when the reversion to the mean occurs, it should be a doozy.
Several times over the last month we’ve highlighted the Gann natural turning point of the December 21st winter solstice noting that this particular December 21st resonates with what W.D. Gann called his Master Time Factor.
Gann said he discovered his MTF in 1908.
Since Gann was a serious student of astrology, I searched an ephemeris for every day in 1908 and found an interesting relationship on the spring equinox of March 21st, 1908.
This only underpinned Gann’s belief that the natural beginning of the year is the vernal equinox on March 21st.
Indeed, the proof is in the pudding.
The subtitle of Gann’s coded book, The Tunnel Thru the Air is…” or Looking Back from 1940.”
Checking a Square of 9 Wheel shows that the number 19 and the number 40 look back from March 21st.
You have to understand that Gann was a master of hiding things in plain sight. He had his reasons.
This is the tip of the iceberg which I did not see for many many years working with Gann’s methods.
I had held this answer in my hands for years, but it took years to get how it worked.
These Principle Of Squares and marrying time and price is something my students who acquire a physical Square of 9 Wheel are given.
It is the key that unlocks the structure and a journey that imparts an outlook on life as much as it does the markets.
So this particular December 21 vibrates with W.D. Gann’s Master Time Factor.
It also resonates at 90 degrees to the August 21st, 2017 Great American Eclipse.
Gann placed a great deal of emphasis on the symbolism and energy in eclipses. His book Tunnel, begins with an eclipse and ends with an eclipse.
Of course, it is not necessarily the day OF an eclipse that will be the cause of an effect.
This may happen within an orb of time of 3 weeks to 3 months before or after the eclipse.
Several times this year we’ve compared the 5 year run from the breakout in late 2012 to the 5 year run from 1995 to 2000.
December 21 is also relevant in this time period as this week is 90 degrees square the SPX/NAZ record high in 2000. (March 24).
Additionally, December 21 is 270 degrees from the spring equinox of March 21st at the same time our idealized level of interest 2700- 2704 is a few good days of trading away.
Remember that 2704 is Gann’s 52 squared.
The high in the market in 1987 was a natural 365 MONTHS ago (come January).
Just as Gann found the square of the number of weeks in a year to be significant, so too he found the number of months in a year to be significant. This is 144.
1440 SPX was the pre-crash market pivot in May 2008.
144 weeks ago ties roughly to the May 2015 SPX peak.
Tomorrow’s report will show the historic significance of that peak using a quarterly channel that has defined the major highs and lows of the SPX throughout its history.
There would be some good geometry if the SPX tagged 2704 on the week of December 21st to early January.
Conclusion.
It’s been one year of holidaying for the bulls. But, capitulation mistletoe hangs over the market like kryptonite:
1) According to a BofA poll of fund managers, a record number of fund managers have adopted higher than normal risk levels. In fact participants are at the highest total in the 16 year history of the survey.
2) According to Jason Goepfert, what is generally seen when funds are heavily exposed to stocks is a stalling out of momentum. In fact, in the history of the data, the only readings higher than late November 2017 readings occurred in late July 2007 at the orthodox top of the last bull market.
3) At the same time reports confirming this optimism show that the major Wall Street research teams are forecasting double-digit returns for the SPX in 2018. This is on the heels of a year virtually absent of any meaningful correction. Apparently money managers are all in on the idea of a Goldilocks economy of synchronized global growth. As Goldman and Barclays offered a few weeks ago, the see “global growth as good as it gets”.
4) The Hindenburg Omen (a waring indicator) has flashed several times this year and Mr. Market has shrugged off every one. However, The Hindenburg met the Titanic Indicator in October. The last two times these two occurred in tandem were January 2000 and October 1987. The DJIA topped in January 2000 while the NAZ and SPX screamed higher into March. In 1987, there was little time to heed the warning. If the combo is meaningful this go round, the question is will there be little warning with January set to see the plug pulled or will can the market push higher into the first quarter. Last week we examined the evidence that cyclical sirens were blaring for the 1st quarter. Feelin’ lucky?
Tomorrow’s report will examine the quarterly history of the SPX which confirms a major turning point is on the table showing that turn could be a rocket higher ala the first quarter of 2000 or it could mirror January 2008 on the Decennial Cycle.
Strategy.
The conditions for at least a 10% pullback are in place. The great likelihood is this will occur sometime in 2018. The question is whether something more pernicious is on the table. That answer will be told by the market itself in its language by its behavior in its own time.
Ironically, 2016 was the worst start to a year ever but the end of 2016 perpetuated a runaway move. Wouldn’t it be typical of the perverse Mr. Market if a deep correction to kick off 2018 proved not to be the ‘buy the dip opportunity’ that that the universality of opinion has adopted that the market has setup the vast majority of market participants to believe.