The market has followed through almost exactly as I outlined two weeks ago when I said multi-week and possibly multi-month buy signals were triggered projecting a push to the 4020 region.
These signals were within the context of a bear market rally.
To recap, the SPX triggered a Trap Door buy signal on July 14 as it followed through to the topside above its 20-day moving average.
We stated that any pullback should hold a backtest of the 20-day ma which is tied to the key 3820 pivot.
It did…on July 18th.
The next session exploded higher with a Keyser Soze continuation signal– a Reversal of a Reversal.
In other words, the SPX reversed the July 18th downdraft with authority, turning the important 3-Day Chart up in the process with 3 consecutive higher daily highs.
The SPX popped up to 4012 on Friday’s open before getting ambushed.
The index dropped 71 points from session highs before trimming losses to close down 37 on the day.
The market dropped on Friday as the SPX hit this significant 4020 region.
How do we know it is significant?
Because way back in February Hit & Run flagged the strong likelihood that the SPX would drop to at least 4020 because it is 1080 degrees down from the 4818 all-time high.
However, 4007 is 540 degrees up from the 3637 low of the year.
So 1080 degrees ( 2 X 540 degrees down from the ATH) and 540 degrees up from the low of the year converge for powerful resistance in the low 4000 region.
Friday’s 4012 early high split the difference of this important “combo” resistance.
Friday’s reaction proves how the market is synchronous in responding to these geometric “hidden pivots” within the market.
90 degrees down from Friday’s 4012 high is 3949. Constructively that held…at least on the first stab down.
If the SPX trades today below Friday’s low, it will be in the daily Plus One/Minus Two buy position.
That is NOT an automatic buy signal. It depends on how the index responds to the SETUP.
Notice on the daily SPX below that Friday’s pullback not only came from multiple geometric synchronicity, but that it followed a test toward a rising trend
Theoretically, the index could backtest the breakout pivot (the blue line) all the back toward the key 3820 level and still be in a position to rally.
In fact, a pullback that holds 3820 again could establish a third higher low from the mid-June low.
Be that as it may, key resistance remains 4020 with sustained breakage above the upper rail of the green channel opening the door for a turn-up of the Monthly Swing Chat.
That would occur in August on trade above whatever July’s high turns out to be.
That is when Mr. Market will tell us if a further summer rally is on the table or whether a new leg down is imminent.
In sum, 4020 exerted its influence on Friday and we must be mindful that surprises in a bear market are to the downside.
For example, notably, there was a surprise waterfall decline starting on June 9th from a “perfectly fine looking” Bull Flag.
Notice how a large Neckline (purple) on the SPX also ties to this 4020 region.
Interestingly, the mid-June decline occurred after the SPX seemingly reclaimed the Neckline.
But, when it broke back below the Neckline all hell broke loose.
This proves the validity of this Neckline– now at the 4020-ish region.
Should the SPX pull itself above the Neckline and hold above it, it theoretically opens the door for an extension higher.
However, the lesson from early June when the Neckline was reclaimed looms large.
If the SPX can get traction above the Neckline and 4020 ish, it can buy some time.
If not, it is vulnerable sooner rather than later.
Either way, the next vicious leg down is on deck.
The more pundits ask “Is the Bear market over”, the more bearish the picture looks.
The Street seems very optimistic about the notion that the bear market is over.
Tomorrow’s report will examine another period where the Street was very cautious in the midst of consolidation after an explosive rally. That consolidation led to a rocket higher.
Now the Street is very hopeful following a diabolical decline.
The likelihood is a mirror image fold-back is on the table pointing to a waterfall decline.
The issue, as always, is a matter of timing.
That’s the question we will address in tomorrow’s report…TIME…of which the aforesaid mirror image fold-back helps to answer.
For the bears, it’s simply a matter of pay me now or pay me later.