“Stocks don’t move, they are moved.” Jack Cooper
Our Expectation Tuesday morning was for fresh new lows on the month.
Yesterday the DJIA water-falled below last Friday’s September low striking a new low for the month …knifing below its 50 day moving average in the process for the first time since early August.
The Hand clearly is protecting The Baby…the 50 day moving average.
Breakage below Wednesday’s low will issue a major sell signal…a Reversal of a Reversal.
The SPX fell just shy of undercutting its low for the month but reversed after filling an open gap.
Turnaround Tuesday gave only a glimpse of what Whiplash Wednesday would bring.
In other words Tuesday’s Turnaround set the stage for Wednesday’s Whiplash.
It foreshadowed Wednesday’s gigantic gyrations.
I have a trading maxim that once a flush out or spike recaptures 50% of the move, it can go all the way back to where it started ….or more.
That played out in spades yesterday.
After a 50% retrace the DJIA exploded in a flourish on the runoff following a Rule of 4 Breakout (breakage above a 3 point trend line) and a Jump The Creek buy signal (pushing through the opening down gap).
For its part, the QQQ, on the back of strength in chips, rocketed to a Bowtie of its 20/50 day moving averages leaving a large range outside up day.
Is it a one day wonder scoring another lower high or the beginning of a move to new highs?
Is the SPX putting in a Right Shoulder of an Inverse Head and Shoulders?
If so Wednesday’s Expansion Pivot (largest move in 10 days thru the 50 day moving average) will see follow thru.
Follow Thru Is Key.
Today’s reversal is interesting because September 11/12 squares-out with the all-time high.
We should know before the end of this week which path the market will take.
But as walked thru recently The Cycle from 1929 to 1932 will be exerting its influence in September or the week of the election.
This cycle aligns with the week of Autumnal Equinox, which is Gann Day, which has been historically a major turning point.
We will do a write up on it this weekend.
In sum, if the first mouse gets the squeeze and the second mouse gets the cheese, which move is the false move and which one the directional move?
This is the question on multiple time frames currently.
Was the rebound off the Flash Crash into August 5th a squeeze higher after a good sell signal?
Is the breakage following the August 30th test of SPX all-time highs a false ‘squeeze’ signal with a directional move, a new leg higher, signaled on Wednesday’s upthrust?
The Mother of Buy the Dips played out on Wednesday.
It’s emblematic of the last 15 years.
It’s the entire 2020 crash and rebound compressed into one day.
Crashes don’t come from too much bullishness. They come from too much complacency.
There’s no convincing the complacent. You either sense what’s coming or you don’t.
It’s like a sixth sense in a way, an intuitive awareness developed by absorbing losses in previous “unpredicted” crashes.
Markets are manipulated, yes…but they’re still structures of tightly bound, self-organizing complexity which lend themselves to sudden collapses.
Breakage below Wednesday’s low will issue a major sell signal, a Reversal of a Reversal.
Tomorrow: What does the un-inverting of the yield curve have to do with the price structure in 1929?