Thankfully, we are reaching the end of the road for the big cycles for the second half of 2014.
This has been a big one, three months long with one correction in the books, and it has already been washed out. That brings us to a sweet spot right here. At the back end of 610 weeks off March 2003, Friday was trading day 1439 (Gann 1440) and we have a very interesting price and time square at the new high. From the 2009 bottom Friday marked 68.46 months and the square root of the high was 68.92. These numbers have been tracking closely for the past couple of weeks. If something is going to happen, now is the time for it.
All of this is good, but there is a formation on this chart which makes the whole condition even more interesting. It’s the candle formation, called a bear belt. That is gap up after a bullish move which turns out to be the extreme price and it closes on or near the low for the candle. It’s very reliable as a reversal pattern. Think about being long on a gap up and closing on the low for the day. Isn’t that disheartening? The last couple of days had the feel of a buying panic and given the positioning of the bars it is possible we are having a blow-off. The last two days we’ve had one great spurt of buying with just a drift up on the momentum while Friday actually turned the other way.
Before some of you bears get too excited you should know markets rarely start big moves off the top in November but reversals do happen, most notably in 2008 and 2012. Obviously in 2008 we had the NDX bottom and this belt hold comes right at the anniversary. But in 2012 there was the day Congressional leaders Mitch McConnell (E-KY), Harry Reid (D-Nev.), Nancy Pelosi (D-Cal) and John Boehner (R-Oh.) had that photo opp in the middle of November when they all agreed they wouldn’t mess with government. You remember that, even as they agreed they went all the way to New Year’s Eve before they came up with a deal.
That November feel good session ended a correction so it is possible to get turns in November. We just don’t get major drops originating in November. What can happen instead is a move off this high until such time we get into December when they stage a Santa Rally. I’ve also seen market start dropping for real in January. So it is feasible we put in a top here but only to realize it in retrospect later on. This will be a short week, given the holiday, and we could be on light holiday volume by late Tuesday. So the tone should be set early.