Beware the Buys of March
A new substantial all-time high in oil fueled a skid in stocks on Wednesday.
However, as you know, stocks were poised for such decline. Remember recently I said that research done by my partner, Dave Reif at MutualMoneyFlow.com, stated that it never pays to chase strength in March? That certainly was prescient.
The rise in oil, coupled with a heavy-duty profit warning (or should we say loss warning) from
General Motors
(GM) - Get Report
conspired to cause the bulls to keep their wallets on their hips, and in so doing, they relinquished the interim uptrend to the bears. Why? Three technical reckonings show the broken uptrend:
The S&P closed convincingly below its 50-DMA.
The 1190 S&P "square" was broken on a closing basis.
A trend line from the October low was broken.
I've stated all year that 1225 was a key target, with 1260 as the next possibility. In my experience, when a stock or index closes precisely on an important square, as was the case on March 7 when the S&P closed at 1225.30, many times it indicates a significant turning point.
Interestingly, 360 degrees up on the Gann Square of Nine Chart from the last major swing low in October at 1089 was 1225. So the market's internal agenda was fulfilled, for the time being anyway, consequently the largest reaction to date this year looms.
Why? The five-year, four-year, three-year, two-year and one-year cycle into March beckon as the S&P has broken its 50-DMA for the third time this year. The third time should not be a charm. The market is vulnerable to a panicky plunge into the end of March -- as we have been warning for sometime was a possibility.
There was no way to tell whether this turning point would be a high or a low, but as I have been saying, the stabs down by the S&P on March 9, and then the March 11 and March 15 outside days down, were the writing on the wall. The vernal equinox March 21, which is zero degrees of the year, resonates off the price of 1173 S&P. So that should act as a powerful magnet into this time frame. If 1173 breaks, the next target is 1157, which is 180 degrees down in price from this year's high. 1157 will slightly undercut the year's low, which was 1163 on Jan. 24.
However, I think there is a better-than-average likelihood that the 200-DMA now at 1149 will be tagged before this decline is over. 1149 is an important number as it is harmonic of the all-time S&P high of 1553 and consequently what I call a "Master Square."
Stay cool. The current selloff should set up a solid buying opportunity in early April.
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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.
Mr. Cooper is also a principal at Mutual MoneyFlow Management, a money management firm that is a registered investment adviser. MMM and its affiliates may, from time to time, have long or short positions in and/or buy or sell the securities or derivatives thereof, of companies mentioned in Mr. Cooper's columns. In such event, appropriate disclosure will be made. 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 personalized investment advice or recommendations, he welcomes your feedback at
jeff.cooper@thestreet.com.
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