All posts by Jeff Cooper
Shake-Out Or Correction?
They say the trend is your friend, but is the trend bending? How can one determine the trend? First you have to define trend. Trend is different for every trader. It depends on the time frame they are trading. Then you must know that there are trends running concurrently like a double helix. There are many methods and strategies that market participants use to determine when a pullback is a buying opportunity or a pullback is something more than a pullback. The 3 Day Chart and the 3 Week Chart are two of the best tools I know of to determine the near term trend and the intermediate trend. The 3 Day Chart turns down anytime there are 3 consecutive lower daily lows OR a prior circled 3 Day low is violated (a prior swing low which marked a trough). The 3 Day Chart turns up with 3 consecutive higher highs or on trade above a prior circled 3 Day Chart high. The 3 Week Chart turns down anytime an item shows 3 consecutive lower weekly lows—or on trade below a prior circled 3 week circled high. The 3 Week Chart turns up anytime an item shows 3 consecutive higher weekly highs —or a prior 3 week circled high is cleared. Let’s take a look at an SPX daily from the last major swing low on August 21st. The last time the 3 Week Chart turned down was on the week of August 21. The index set a low at 2417 on an undercut of its 50 day line. The last time the 3 Day Chart turned down was on November 15th. Notice that there was roughly 90 days/degrees between the August low and the November low. The natural 90/180/270 and 360 day/degree divisions of the year are integral to Gann analysis. The November 15th turndown of the 3 Day Chart also was a test of the 50 day moving average. Today the SPX is poised for a possible turndown of its 3 Day Chart if it trades below yesterday’s low. This will trace out 3 consecutive lower daily lows. Importantly, this is occurring as the index satisfies a 90 degree price pullback. From last Friday’s record 2872 high, 90 degrees down is 2818. Notice that despite the selling pressure of the last two days the SPX has held 2818 on a closing basis. It slipped under 2818 yesterday to a low of 2813 but recovered to close at 2823. Importantly, January 31, yesterday, is 90 degrees square the number 2813 on my Square of 9 Wheel. So we have so to speak, a double square-out on the table: The SPX has satisfied a 90 degree price pullback. Yesterday was a possible time/price square-out with 2813 being 90 degrees square of January 31st. It’s still a bull market so these square-outs must be respected. That said the 3 Day Chart has not turned down yet. It could do so today. Trade below Wednesday’s low that that sets a low and turns up either today or Friday suggests a low of some degree. However there are a few caveats that suggests this time is different that November. First of all the index is dealing with a Break Away gap directly off an all time high. It looks like a Gallows Hangman pattern. This suggests last Friday’s rip was a Buying Climax…at least in the short run. Additionally, the SPX is stretched well above its 50 day moving average—a conspicuous difference between the August and November lows. The presumption is that if the SPX turns down its 3 Day Chart and it does not define a low, it’s going lower. The indication is that if 2818 and 2813 fail to act as support, the SPX is headed lower. The conclusion would be that we have a change in character and that rather than a shakeout, a more meaningful correction is playing out. So let’s do the geometry. A 180 degree decline from high is 2766. 360 degrees down is 2662. This would be one full cycle in price down from the 2872 record high. There is some good symmetry to the idea of a decline to around 2662. It represents a 50% retrace of the last leg up (from the August low). It marks a little burst of volatility in early December which was the mid-point of the rally. 2662 also ties to a test/undercut of the 50 day line. Additionally, a decline that flushes the 50 day satisfies a test of a trendline connecting the August low and the November low. The January low is 2682.36. Trade by one tick below that level in February would also satisfy a turn down in the Monthly Swing Chart. If that occurs, bull or bear, the strong likelihood would be for a continuation of the bull or a reaction higher even if a bear market is on the table. The last time the Monthly Swing Chart turned down was in November 2016. It’s stretched. The probabilities are that it will turn down. If it does not do so in February…180 degrees/days from the August low, it may do so in March on trade below whatever the February SPX low is…going into the NINTH anniversary of the March 2009 low. Whenever it turns down, it will be a significant inflection point. Be that as it may, the price action here going into the weekend will tell the tale as to whether we’re in just a short-term shakeout or a more meaningful correction is on the table. Because 2 X the 455 point range of the leg up from August is the range of the 910 point bear market from Oct ’07 to March ’09, the symmetry suggests that the 2872 high (a square-out as January 26 is 180 degrees opposite 2872) may have marked the end of a significant Buying Climax—one which should at least see the deepest correction in the last 14 months. Interestingly, 455 is opposite the date of March 6th…the low
Continue Reading -->ROKU Walk Through
On January 22, the following alert was sent to subscribers, before the open; W.D. Gann said the 50% retrace alone was a powerful trading concept. ROKU shows a 50% retrace of the last swing. Additionally, it is in the double down inside position or what I call a ‘crouch’. We are long from last week awaiting the potential turn up. ROKU should react one way or the other today: as the 58 high is straight across and opposite January 20-21 on my Square of 9 Wheel. The combo of pattern combined with a time/price square-out presents an interesting setup on this 1st 50% pullback in a hot new issue. This was followed up on, shortly after the open, with the following: Before the open, we sent a note on a long ROKU setup. Let’s look at this morning’s action. ROKU opened down but quickly turned up triggering an Opening Range Breakout (ORB). Notably, the down open did not violate the ‘crouch’ position. The down open followed by a breakout over the first half-hour’s range is what I call a Catapult ORB. In other words, ROKU pulled back the rubber band to kick off the week and found bids underscoring the viability of the setup. We will complete our pilot long position here at the market maintaining our stop. Good Luck, Jeff With the strength seen in ROKU, we sold half our position at 43 giving us a 2.16 gain. We are trailing the balance at 41. *UPDATE* Yesterday ROKU responded to a turning point mapped out ahead of time. As the Square of 9 below shows ROKU’s 58 all-time high is 180 degrees straight across and opposite January 22. (click here to enlarge) At the same time ROKU showed a 50% retrace of the last swing… offering an idealized long set up in tandem with a flush out of the 50 day line. A 10 min ROKU maps the action. A Boomerang buy signal was triggered following an undercut of Friday’s flat when price knifed back through the flat. An Opening Range Breakout confirmed the idea that ROKU had found bids and was poised for a ramp higher. The little opening decline set the trap door as buyers were waiting. Subscribers initiated a pilot position last week at 40.66 and completed it yesterday morning at 41.02 for an average cost of 40.84. We sold half the ROKU position yesterday at 43 and the balance on this morning’s spike.
Continue Reading -->2017: The Year of Zero Panic… for Now
“Life can only be understood backwards; but it must be lived forwards.” -Soren Kierkegaard The Fed said they would continue to tighten and was perceived as more hawkish and the market fell for a half hour before the Fed likely stepped in to support the market while Yellen was speaking. Today or tomorrow, we should get an idea if there are real sellers around. Most NAZ names are under selling pressure and were flat or being sold yesterday while ETF’s supported the market. The Decennial Cycle was a major factor in W.D. Gann’s forecasts of the stock market. This refers to years ending in 2 being good lows and years ending in 5 being strong rally years in what Gann called the Year of Ascension. Years ending in 7 often were marked by panicky selling. The 100 year cycle is the mother of the Decennial Cycle. The crisis that began in 2007 was 100 years after the 1907 Rich Man’s Panic. It didn’t matter that there were not collateralized debt obligations. The cycles still exerted their influence. A further 100 years back to 1807 saw major panics in the US and Europe related to trade and war which evolved into depression. 1995 to 2000 marked a runaway bull market. The same occurred between 1895 and 1900. Ditto 1795-1800. However, 2015 was not a Year of Ascension in the stock market. It was more or less flat. Subsequently, the market played upside catchup. Likewise, 1927 did not see panicky selling. The result was that the continued ramp in the market into 1929 means that the cycles played an ugly game of downside catchup in 1929. Likewise, we have not seen panicky selling in this year ending in 7, 2017. The year is not over. Did you ever wonder why October has seen so many blood baths in the market? October is the 7 month (7 symbolizing panic, completion) from the ‘natural’ beginning of the year, March 21. We are going into the 7th month of a year ending in 7. Tomorrow is the Autumnal Equinox, the day that the legendary W.D. Gann called the day more likely to see a trend reversal than any other day of the year. Tomorrow’s report will examine some of the reasons why Gann thought the fall equinox was so important. Suffice to say that the days surrounding this particular fall equinox may be the most historic in 6,000 years according to the constellations. As for the significance of the fall equinox in the markets, there were the October massacres of 1978 and 1979 and the crash of 1987, the mini crash of 1989, the 1997 Asian collapse and the Long Term Capital Market plunge. Gold stocks topped on September 22 in 1980 which tied to the peak in may oil stocks that year. (Remember that the all-time high in gold was also in a September in 2011). Going back further, on September 22, 1929, the Dow Jones Utility Index became the final major average to make high before the Crash of ’29. The lesson there being that money ran into utility stocks after other stocks topped on September 3 that year, but that ultimately there is no place to run and no place to hide when panic hits the tape. Everything is a source of funds when indiscriminate selling is let out of the cage and the margin man cracks his whip. In 2008, the markets went into freefall in the days following the collapse of Lehman Brothers. The fall equinox that year marked chaos in the markets when the House of Representatives rejected TARP. Currencies have seen historic changes around this date as well. The British pound was removed from the gold standard and devalued 28% on September 21, 1931. On September 22, 1985, the Group of Five produced the Plaza Accord, which perpetuated a sharp decline in the dollar and expansion of global liquidity. There was a Black Wednesday on September 16, 1992 when Britain was forced to withdraw from the European Exchange Mechanism. Treasury note and bond yields made their historic highs in late September 1981. That marked the end of a 35-year bond bear market from the end of WW2. We have seen a 35 year bull market in bonds since that time. The beginning of September 2000 was the test failure high in the SPX of its March high that year. This year we saw an important high in March at 2401 SPX (an important level) and 6 months later the SPX hit 2509… an important range of 108 points 180 degrees later. We will delve more into the significance of 108 tomorrow but 3 X 360 is 1080 and in Gann and in geometry, you can always move the decimal point. Three is one of the secrets in Gann’s coded novel The Tunnel Thru the Air found on page 69. Conclusion. So what is the setup going into this Autumnal Equinox? The dollar had a big day yesterday and continuation above 93.50 could be a sign of a change in trend. Alternatively, a failure here should see an accelerated decline in the dollar in October. Oil is flirting with a breakout over 51 which could see 55. The oil stocks have come to life in recent weeks and our OAS and FMSA swing positions have been working nicely. Gold has pulled back to test the double tops at 1300. I did not think it would pull back this far, but if a new leg up starts and exceeds the recent highs and 1360, it should mark a strong advance. So in that respect, this reaction could be simply pulling the rubber band back for a major move. The semi-conductor stocks saw a sharp break yesterday on issues and orders concerning the new iPhone and watch. A weekly SOX shows a large range weekly reversal bar on the week of June 6. The SOX set a new high above the former peak and a quick stab lower will issue a weekly Soup Nazi
Continue Reading -->Feeding the Ducks?
An historic contraction in volatility this year cooked up a whack-a-mole stew of selling volatility. Every time the market got hit, it was just another Sunday at Church for the Buy the Dip Congregation. Lately, it seems like it’s Sunday every day. The bounce back from last Wednesday’s air pocket set the land speed record for baptism by fire with the market jackknifing back into safety before you could say Lazarus. Never underestimate the scent of a ‘free lunch’ to lure the best and brightest financial engineers on Wall Street, the only place where the caboose always is in front of the engine. In other words, it’s always the derivatives, leverage, and tangential strategies that drive the money train. You don’t make the billions the banks and hedgies do with plain vanilla. When a political snowball from hell rolled onto The Street last week with the SPX hovering just below all-time highs and option expiration just days away, players who sold volatility were in jeopardy of choking on their own free lunch strategies. So in the best tradition of a bull in a China shop, it looks like players had no choice but to throw a Hail Mary into the fray and put on a Squeeze Play beginning last Thursday. What better way to do this then to let Wednesday’s selling run its course and close on its low before jacking this 18-wheeler back up out of the blue. Well it wasn’t completely out of the blue. Mr. Geometry lent a hand with the SPX closing directly 90 degrees off the key 2401 level last Wednesday. While a week ago, all hell broke loose and it looked like the SPX would finally test the key 2280-2300 level or worse, today, the hall of mirrors at 2400 is back in play… again. This must be the 7th attempt to covert 2400. I’ve lost count. The action certainly speaks to the idea that ‘There’s Something About 2400′ as we flagged before March. Some think the bulls have run out of money with a Big Seller sitting on 2400, or that there’s a lot of hedging going on there. Maybe, but underneath the surface, a handful of ‘Nifty Fifty’ names have been ripping higher. These include our old friends AAOI, SHOP, LITE, TTD, PFPT, WDAY and IRBT as well as the runaway Chinese Brigade, WB, SINA and SOHU. If I owned a major fund, this would be my strategy: I’d keep the indices flat below a ceiling of say 2400 and buy my belly full of stocks, keeping the crowd in suspense and competition at bay as they sold each time the index kissed 2400, only to be rejected. Then I’d add to my longs on each pullback. Once and only once I was ready, I’d let the SPX vault 2400 and start feeding the ducks, distributing positions into the quacking now that the ‘coast was clear’. I’m just sayin’: if it looks like a duck and quacks like a duck… The bulls would love nothing more than to get a close meaningfully above 2400 going into the long weekend. With names like X creeping higher as flagged yesterday and IBM catching a bid this morning, and with energy names getting a lift from $50+ oil, the junkyard dogs may create enough of a tail wind to chase the SPX over 2400 into early June, where a possible time/price square-out is on the table. However, I’m not so sure a breakout is an all clear: if the SPX satisfies our long outstanding target over the next few weeks, the bite of the bear may ultimately prove worse than the bark of the bulls.
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