It’s been an interesting year technically for the equity indexes. The first few months were spent challenging upper technical targets with the Dow Jones and S&P 500 indexes challenging the 61% retracement of the bear market with the Dow reversing right at it.
Equity markets have been looking for an excuse to sell off and it goes beyond a simple Fibonacci retracement. There is a good price and time calculation that suggests the top is in for the year. It was W.D. Gann who taught nearly 80 years ago that we need to square the price range with time. But what does that mean? The bear market in the SPX had a range of 1576.09-666.79 for 909.30 points. If we take the Dow/SPX top on Oct. 11, 2007 to the April 26 top we get 928 calendar days, so that doesn’t work. But when we take the number of calendar days from the Nasdaq 100 top on Oct. 31, 2007 to the April high we get 908 calendar days. Now we are on to something. This is the reason that tech topped three weeks later and what Gann was talking about all those years ago. It’s complex and well hidden but we have +/- one calendar day for each point of the bear market from one major top to the next. We don’t see this kind of calculation every day but squaring the range appears at important turns throughout history.
The rest of the year will determine how deep and far this correction is willing to go.
History shows us that important bottoms will be retested. There is no reason to believe the November 2008 and March 2009 lows will be any different.
As we have really good symmetry at the top and bottom, prices can stay range bound for years but what we are looking for here is how the second half of the year goes, August in particular. The tech indexes, which topped three weeks later than the SPX, will be 144 weeks (an important Fibonacci level) off its bear market top around the first week of August. “Day of reckoning” shows a weekly chart of the SPX with the time window offset to reflect the Nasdaq top.
In the past decade we’ve had several important turns, in August 2004 and then again in 2007, which led to that final leg up. Aug. 13 could be another. Whichever way the market is heading, that will likely be the most pivotal time of the month and traders should be ready.
Longer term, the pattern will be 161 weeks off the SPX/Dow 2007 top by the second week of November. Since all windows are plus or minus one, we could have another important turning point from the middle of October to the middle of November. Since markets love anniversaries, that time of year is full of them. While nobody has a crystal ball, it looks to be a choppy summer followed by a rough September and October.
Jeff Greenblatt is the author of “Breakthrough Strategies For Predicting Any Market,” editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. and a private trader for the past eight years.