The market has been up ever since the S&P 500 (SPX) hit 133-360 minute bars off the top. Prior to that it hit 133 bars on a 180 chart. Prior to that the first leg down was 340 points which found a low at 2532.69. I think that debunks the random walk crowd’s view of all market moves being random for the rest of time. Think about this for a minute.
What are the odds of a pattern in a financial market lining up like this if markets were truly random? It would have to be in millions if not billions to one against it. Now throw in the Dow with its 23344 bottom in 44 trading days. Whatever those odds would be, it's still greater than the chances for the New York Knicks to in the championship the next few years.
What it's done is give us a solid bottom in the same way the Dow gave us a solid high back in January. Today the media (who keeps track of these things) said the market was on a 7-day winning streak. That means not only the low but secondary low is very secure. Right now, the Dow is testing its big balance line it held more or less through February and March. I’ve been waiting for this test for several weeks.
You can see here on the 180 Dow chart that today starts a 58-bar window on the 180 back to the prior high at 24858. Monday is 57 bars. Want to dig deeper? That move was up 1514 points and by late Wednesday there is another chance for reaction as the Dow will 151 hours from that pivot. So, there are two high probability points to consider for the week. Does it have work out this way? Markets can and will do whatever they want whenever they want. Sometimes I have an idea what I think will become perfect symmetry looking out down the road like we are right now, and it comes in just like that. Other times the market comes up with some other symmetry a little before or after. That’s why this is a game of managing risk and probability.
However, I do think we will get a reaction out of this symmetry which should be the next major inflection point. There are always implications of the market giving us ‘new bits of information’ as Bill Williams likes to say. If the bears miss on this test they open the door to a fresh leg up from here. On the other hand, it has the potential to halt the rally altogether.
We are in a unique position in market history none of us have been through before. Yes, it looks like it could sustain a leg higher from here, we’ve seen it a thousand times in the past 9 years. But we’ve never dealt with a period where geopolitical risk has been this high. There are certain world historians who do their own cycle work. They call what we are living through the 4th turning. In American history, starting with the American Revolution, Civil War, WWII to now we’ve had these forks in the road roughly every 80 years. All I can do is go back to the charts from the prior turning in the late 30s which is the last time geopolitical risk has been this high. What if we are in the 4th turning? I’ve heard other experts call it a war cycle. With all the animosity spreading around the globe these past years, it seems inevitable something will happen. Oil traders seem to think so.
Nothing might happen for weeks or months, but the Middle East could blow a fuse at any time. I’m sure you’ve noticed the missiles being lobbed back and forth from almost the moment Trump pulled out the Iran nuclear deal. The question now is whether the proxies of America and Russia will be reigned in before the conflict escalates. As I write this I’m watching the ceremony to move the American Embassy to Jerusalem. I’m sure there are more than a few people who are upset by this. These are my thoughts as I work at navigating markets from one day to the next and why I prefer to trade 1-minute charts. All I have to do is keep my nose to the grindstone and the pattern. But the larger intraday cycles are suggesting there could be trouble this week given the cycles and resistance points on the chart.
Crude oil seems to be on the rise again as this is a beautiful setup given the recent drop of 1.63 and a slash line of 38% retracement and 2.61. Everything is lining up. I know this is starting to sound like a broken record but what the market lives on today might crush it tomorrow. The bulls love oil stocks being up right now. But its like chocolate cake. Inevitably, too much of a good thing becomes gluttony. History has shown us the true pain at the pump hits around $4 per gallon. In my area prices just crossed over $3 but I know in California that has already happened and in the most remote places gas is more than $5 per gallon on Route 66. Now throw in the interest rate issue and we are starting to work on the perfect storm. The ten-year price has been lower since Thursday in particular but generally speaking since a week ago Friday on the May 4. At what point do they notice oil and interest rates spiking together? We don’t need a conflict to break out somewhere, all we need is for the crowd to wake up. It could happen this week.
We carry on because we always want what the market wants and right now, the best calculations are coming off the low. That could change or not. The most important takeaway from this exercise is to realize never front run the bars. People think Gann is a crystal ball, it’s not. The idea is to let the market do its thing and wait for the reaction. Does the reaction carry the calculation or not? If it does, then you react. I was mostly bearish until I saw the calculations form along the bottom.
After the Dow 44 sequence, I told you a low was in place, but I would not look any further than the retest of the balance line. Then the 133-pivot formed and last week I reported the possibility of going back up. A lot of people in this business get their pride involved and can’t change their own narrative because they’ve invested too much emotion in it. Yes, I think we are in a problem cycle which is different from 2017. But I also have the capability of understanding these vibrational square outs, what they mean and be able to change my view on a dime. The cycles do allow for a delay in the bearish outcome. Even if they didn’t, it doesn’t matter because our job is to work with those "new bits of information." How psychologically invested are you in an outcome that you won’t be able to change course when presented with a stack of new information?