Market May Cure Its Summertime Blues

Now that is what I call pin action.

OK, tell the truth. How many of you were ready to chip in to pay for my head to be examined early in the week with the S&P 500 plunging to 1220 when I said that a move to 1260 for Friday's options expiration would likely hurt the most traders -- and not to be surprised by such a move? On Thursday, the S&P closed up 26.10 points, trading to as high as 1258.65. That is close enough for government work.

This week's action is a good example of the most important tools needed to capitalize on market movement: time, price, and pattern.

To recap, 1220 was 270 degrees, or three squares of 90 degrees down from the 1326/1327 S&P high from May. As shown over the past two days, the pattern down into the low shows a measured A-B-C move that projects down toward 1220. As far as time goes, the cycles of which we warned that looked to be topping out in May and would lead to an explosion in volatility have certainly popped their cork.

In addition, I want to remind you of the 19-year cycle that, as you know, suggests an analog to the volatility that occurred in 1987. Recently, I mentioned the pronounced whiplash that occurred in the market in May 1987. When that bungee jump ended, an approximate 90-day advance into the end of August played out prior to a crash in October of that year.

That does not mean to infer that we will get a new high here this summer or a crash into the fall, but I would not be surprised to see a rally phase sometime this summer, as well as significant pressure in the fall.

It is also interesting that 1987 was Greenspan's first year as Fed chief and that the markets went bipolar then as he made a point of proving the Fed's toughness. On Thursday, with the market already up big, fresh comments from current Fed chief Ben Bernanke poured gasoline on an already raging rally. In some strange, Kafkaesque kind of metamorphosis, hawk became dove apparently, as Bernanke's comments intensified today's upside momentum.

---

Jeff Cooper is the creator of the Hit and Run Methodology and the author of the best-selling books Hit and Run Trading (The Short-Term Stock Traders' Bible), Hit and Run II (Capturing Explosive Short-Term Moves in Stocks), as well as a video course, Jeff Cooper on Dominating the Day Trading Market. He also created the Hit and Run Nightly Reports and co-founded a trading markets Internet site.

None of the information contained in Mr. Cooper's columns constitutes a recommendation by Mr. Cooper that any particular security, portfolio of securities, transaction or investment or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. While Mr. Cooper cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.

TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.