“How do you shoot the devil in the back? What if you miss?” Keyser Soze
We pinged the above on the Hit and Run Private Twitter Feed on Tuesday morning.
The SPX dropped to 5504 before closing at 5529 to hold the 180 degree square. Bouncing off a 20/50 day moving average Bowtie.
Sometimes we just nail it…with the help the legendary W.D. Gann and the best trading tool on the planet, the Square of 9 Wheel.
Who woulda thunk a Katy Bar The Door Reversal was on deck after Friday’s late rip where the DJIA closed at a record high and the SPX was just shy.
Clearly continuation was called for but worse than expected ISM number Tuesday morning reflected slower than expected performance for August manufacturing which has been declining for the past two years.
So it’s been declining for two years and now one number sinks the market?
I doubt it. The news breaks with the cycles.
Yesterday we walked through a symphony of cycles due to sound off
(at least a symphony to Mr. Bear’s ears).
The Gann Panic Cycle was front and center.
Counting from the July 16 SPX high the ‘crash window’ opened August 27th and runs to AROUND September 7th.
I say around because in 1929 it ran until October 24th and the market was in free fall on October 28th and 29th.
The market is not a fine Swiss watch.
Ditto 1987, theoretically the panic window closed on October 15th. Well the next two trading sessions were an waterfall.
Above I said Tuesday was a Katy Bar The Door decline for three reasons.
- There was no rally attempt.
- When the SPX triggered an Opening Range Break (trade below the first half hour’s low) at 5601.75 in tandem with snapping 5595 all hell broke loose.
- Then, when the SPX knifed below Friday’s 5581.79 low, Katy did her best impersonation of Carrie at the prom.
That is because Friday was an outside up Reversal Day (Thursday was a down session). Consequently, trading below Friday’s low triggered a Reversal of a Reversal…what I call a Keyser Soze.
Why 5595? That is 90 degrees down from the 5669 all-time July high.
Now what? For the last 9 sessions the SPX has been death by a thousand cuts for traders with the SPX alternating between closing on its lows and then gapping up and vice versa.
So today the SPX gaps up and closes on its highs, right?
We may get a change in character because we are in the heart of the Gann Crash Window and because a Secondary High may have been struck on Tuesday in the SPX and the DJIA.
In other words a Secondary High to the July highs.
As W.D. Gann wrote the safest place to short is after a Secondary High.
So where’s the downtown ‘Door’ in the Katy Bar The Door scenario?
As offered, 180 degrees down is 5520.
Breakage below 5520, that sees follow thru opens the downtown door.
360 degrees down is 5373.
That MAY happen quickly if Mr. Momentum shows up below 5520.
Why?
- Breakage below the 20/50 day moving averages should perpetuate acceleration.
- Below Phil D Gap at 5455. Triggers a Jump The Creek continuation sell signal.
- A 50% retrace of the rally off the August 5th low equates to 5384. This ties closely to the aforesaid 5373 50% retrace region.
Markets seek equilibrium. The SPX may be a heat seeking missile to 50% of the August range.
In early August we got a 3 Day Flash Crash of 446 points.
A Measured Move from Friday’s high gives 5204 which ties to the low close for the month of August, the close on August 5th of 5186.
I often say the first mouse gets the squeeze, the second mouse gets the cheese.
I can’t help but wonder if the Second Swan gets the Cheese.
Tomorrow morning’s Hit and Run report analyzes precisely where a Swan Dive could take the SPX.