Down-Up-Down Sequence Could Be in Works
Tuesday was the anniversary of the four-year crash low from 2001.
As stated yesterday, 1174 on the
S&P 500
resonates off the vernal equinox of March 21.
On Wednesday, the S&P closed below that level, at 1172.07. Consequently, I believe we need to see a first-hour low on Wednesday, with a possible test later in the day and then a strong close -- at least above 1180 -- to suggest the market is tracing out a low in here.
Such a pattern, if it occurs, could indicate the first leg of the down-up-down sequence that I suggested yesterday is unfolding. In other words, a first low that could play out in here, a rally phase and then a test of the low that undercuts Tuesday's low in early April would theoretically set the hook and put in the setup for a sustainable advance.
This pattern would basically be a mirror image of the false breakout to 1225 this month above the January high. Either way, history suggests that the quarterly Gann swing chart or trendline is due to be broken.
In other words, whatever low occurs in the first quarter is a good bet to be undercut in the second quarter -- most likely in early April. In my opinion, the sooner the better for the quarterly trendline to be broken, if a low is setting up.
There are two alternatives to this scenario of a low setting up right now:
A panicky plunge into the first week of April.
A larger/longer-lasting decline that sees the S&P down 10% to 20%.
We mentioned this possibility some time ago as a likelihood subsequent to our target of 1225 or 1260 being tagged. The S&P hit 1225, leaving the more widely embraced target by technicians on the Street -- 1260 -- untagged. A 20% decline from the 1225 high would tag the important breakout point near 960/1000 S&P.
In my opinion, two factors support the possibility of a 10%-plus decline. One, as reported to you earlier in the year, was that despite the idea of the popular notion of an up '05, the year 2004 played out in a relatively tight trading range, with an upward bias.
The expectation for a strong '05 after a good '04 had not been discounted by the Street at large. Additionally, the historically low volatility numbers born from a trading-range year suggested a more volatile '05 than '04, with three to four big swings -- possibly as much as 10% or more.
Finally, '05 has begun with two out of three months being outside down bars -- based on the S&P 500. This is not a good omen.
Conclusion
: The Nasdaq closed below its 200-day moving average on Tuesday as the S&P scored another Real Distribution Day. On the S&P, first support is 1157, then 1123. These could come into play if 1180 is not regained quickly.
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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
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