Can This Pig of a Market Fly?
Bears looked down the barrel of a loaded quarter-end rifle last week as fund managers put lipstick on a pig to save a bit of performance as the second half winds down.
The question is can this pig fly further though the summer?
Based on my big picture cycles, the next two weeks will answer the question as to whether stocks are locked and loaded for a summer bear market rally.
As well, shorter term cycles point to the first week of July as pivotal as it is 180 geometric days/degrees from the SPX January 4 all-time high.
Additionally, June 29th is a geometric 90 days/degrees from the important March 29th secondary high.
So the period from June 29th through July 4th (+ or -) will determine a lot.
Fast moves come from false moves and the bulls did a good job of capitalizing on a Bear Trap as shown on the weekly SPX below.
The Bear Trap was an undercut of a well-defined trend channel (purple).
Note how the secondary high in late March was defined by a perfect touch of the upper rail of the trend channel.
The flush below the bottom rail of the trend channel was set up by a failed Bull Flag on the dailies.
The rally was not unexpected. It originated from our forecast level of 3649 for “A” low (versus THE low).
The actual low for the year: 3636 on June 16.
The low CLOSE, the day before at 3666…3,000 points above the bear market low of 666 on 3/6/09.
Nicola Tesla wasn’t kidding when he stated, “If you only knew the magnificence of the 3,6, and 9, then you would have a key to the universe.”
Long term readers are familiar with my Hit & Run Swing Method using the 3 Day Chart and the 3 Week Chart which do a great job of determining the short-term and intermediate term trend.
W D Gann wrote to key off the weeklies so let’s checking the above weekly SPX let’s see how to apply the 3 Week Chart.
From the early January all-time high the SPX immediately turned its 3 Week Chart down. Notably this followed a Key Reversal Week at the ATH.
The index slid a little further on the 4th week but reversed to close up on the week which perpetuated the first turn up of the weeklies (1st green ellipse) since the high.
If the trend was genuinely down, there was a strong likelihood that the first turn up of the weeklies would define a high given the young bear.
Hit & Run subscribers were well positioned for a rollover based on my forecast in November that “the market would get hit hard in January to kickoff a multi-month decline.”
The weeklies turned up again on the week of February 28th (2nd green ellipse) and immediate turned down again into early March.
From that low the SPX carved out the first turn up in its 3 Week Chart into late March (3rd green ellipse).
The 3 Week Chart turns up on 3 consecutive weekly higher highs.
If the intermediate term trend is down then a turn up of the 3 Week Chart should define an important high. It did.
As we now know, with the benefit of hindsight, the turn-up of the 3-Week Chart in late March marked a secondary high.
As well, it would end up defining an important point at which to create the current declining trend channel.
Consequently, since the turn up of the 3 Week Chart in the context of a burgeoning bear market is a big deal, it was not a surprise that the first turn up of the weeklies would define the high prior to a fast down-draft.
Indeed the 4th green ellipse on the above weekly SPX saw a large range outside down week, which perpetuated a waterfall decline.
Notably that decline came within a hair of the bottom rail of the downtrend channel.
That near “kiss” of the bottom rail perpetuated a turn up of the weeklies once again.
In fact it saw the SPX trace out TWO consecutive weekly higher highs (5th green elipse).
The second higher weekly high on the week of June 6th made a marginal new high over the prior week, but, nevertheless, was a second consecutive weekly higher high.
In so doing, the SPX satisfied the criteria for a Minus One (the 3 Week Chart pointing down)/Plus Two sell setup (two consecutive higher weekly highs while the 3-Week Chart is pointing down).
This weekly -1/+2 sell pattern preceded a 470 point waterfall decline 6 days. On the 7th day the SPX closed green…albeit barely.
Was this enough to establish the panic/capitulation we were looking for?
The short answer is maybe…given last weeks strong upthrust; however, history has several instances where the market knifes back down to a new low after a strong breadth thrust.
As I wrote last week, there is a distinction between the momentum in extreme net new declines versus an actual capitulation/catharsis.
We have dueling indications based on the lack of a pure panic washout and strong breadth last week.
We must be mindful that there were back to back to back 80% up days into May 27th that rolled over.
Is it possible that “failure” that led to a new price low was The Washout?
The quick answer is I don’t know…and neither does anyone else. The difference is I won’t guess and tell you I know. I will let the market speak.
Were there great setups for short term swing trades for Hit & Run members last week in TSLA, SNOW, FINV and W? But those are setups to milk. They don’t speak to the “position” of the intermediate term trend.
How will we know if we have a legitimate trend change on the table?
As I offered in Friday’s report, upside continuation following the turnup of the 3 Day Chart will point higher.
Likewise, the behavior from what is sure to be a WEEKLY Minus One/Plus Two sell setup today will generate a pullback.
It is the behavior subsequent to that likely pullback that will tell the Tale of the Tape.
We are on the horns of a dilemma going into quarter-end… with many players hoping bears are impaled on the horns of the bull — having suffered through the bear claws on the tape for nearly six months.
Coupled with the 3-Day and 3-Week Charts, my Square of 9 Time/Price Calculator is intended to take a lot of the guesswork out of determining how high this stock-market rally is likely to go.
Here’s the roadmap: trade above last week’s high—which should be easy to accomplish — will put the SPX in the weekly Minus One/Plus Two sell position.
360 degrees up off the recent SPX 3636 low for the year is 3881.
The SPX closed above that level on the important Friday weekly closing basis.
This suggests the next 90 degree decrement higher is on the table at 3943.
This ties to the overhead declining 20-day moving average. So, 3943 is well-defined resistance by two methods.
Any pullback early this week should find support at the aforesaid 3881.
Below that opens the door to Friday’s open gap and the 50 hour moving average in the 3800-3825 region.
Clearing 3943 telegraphs another 90 degrees higher to 4007.
This represents a key 540 degree rally off the lows.
As well, 4020 is key because it is 1080 (540 X 2) degrees down from the 4818 ATH.
Consequently, the 4007 to 4020 region is beaucoup resistance by two calculations.
It is also Phil D Gap from the June 10 dive.
In sum, there has been no shortage of setups and patterns to capitalize on this year.
On Friday alone, Hit & Run members hit pay-dirt with long closed-out swings in SNOW (with a max $6.10 gain), W (with a max 8.90 gain) and FIVN with a $3.00 Overnighter setup winner. As well, members locked in a max gain of $3.69 on a short in ZIM.
This is the essence of my Hit & Run Method that identifies sure-fire short-term patterns that have a strong likelihood of follow through.
Whatever anyone tries to tell you…there are no gurus…there are only cycles. And, the news breaks with the cycles…not the other way around.
As the legendary WD Gann wrote, “TIME is more important than price.”