A "Misty mountain top" - Led Zepplin.

Be that as it may, last Friday's close (B) squeezed the sh*t out of the shorts, until it's oozing out from the ears!Even though it was only an inside day, it felt like another barn burner, didn't it? Wow! But, if the close could talks, Monday's open (C)swore a blue streak. How so? As anticipated, there was a better than average likelihood that given Thursday's large range reversal(A) or Lightening Rod (LROD, large range outside day down) that Friday was just a pause day(B), before continuation in the direction of Thursday's(A) thrust down.

The S&P was shouting and swearing for a short to be initiated on Monday morning. Why? Well, the daily swing chart turned down on Thursday's key reversal(A). When the daily swing chart turned back up on Monday morning(C) on trade above Friday's high(B), the market turned limp and rolled over. This is one of the best tools I know of for determining the trend on any time frame. If the daily trend was still powerfully up in runaway takeoff mode, the S&P would not have buckled on Monday(C) morning's turn up. If Thursday's reversal(A) from my 1576 pivot was in fact significant, a daily swing chart turn up on Monday(C) should have defined a high if a turning point was at hand. This is exactly what occurred. In fact not only did the turn up of the daily chart define a high but downside acceleration ensued! Hak!

If the trend were strongly up I suspect the S&P would not have continued to accelerate lower once the Weekly Swing Chart turned down on trade below last week's low of 1546.70.

As you know, Thursday's reversal occurred at an important level, a very important level. The 1576 high is a key six 'squares' of 360 degrees up from the bear market low of 768. Lai...!!Interestingly, rounding off the square root of that bear market low is 28 or the moon cycle of 28 days. The ancients told time by the moon or month while we use the sun.

In addition, 1576 was tagged in the vicinity of the anniversary of some important highs and lows such as the 2002 low, the 1989 low and the 1990 low. Could it be that the market has peaked on the week of the 20th anniversary of the 1987 low when counter-intuitively many, including myself, were expecting some kind of low in this time frame when selling erupted this past July?

Wouldn't it be ironic if a test failure was playing out in October just when the Street had sailed through the worst market month, September, a credit crisis, exploding oil and an imploding dollar, just when the majority on the Street were convinced that the worst was behind us, that we were out of the woods? Just askin'.

So, although it is certainly too early to say the bullet has hit the bone, two real bad-boys distribution days out of the last three sessions have occurred since the S&P hit 1576. Coincidence? Perhaps.

Unless the old levels, 1555/1556, is recaptured/reclaimed, I would be cautious about chasing the longside here as October has a nasty reputation as a cruel bad-boy and a penchant for busting parabolic piñatas!
Misty mountain top.mp3. http://www.40calgames.com/music/Led%20Zepplin%20-%20Misty%20mountain%20Top.mp3

Anniversaries.

Maybe W.D. Gann wasn't just whistlin' Dixie about anniversary dates in the market being important. Mid-week was one of the most important anniversaries in the stock market. Not only was it the anniversary of the October 2002 low, but it was also the anniversary of the big October 1990 low.

The geometry of both dates is cyclically important as the prior signifies a 60 month periodicity and the latter signifies the 17 year Cicada cycle which I referred to going into this year's July peak.

Importantly, that October 1990 low marked the end of the correction from the 1987 peak. Although, the DOW made a new intervening high above the 1987 high prior to a strong decline, it was a relatively short-lived and relatively marginal new high and I view the whole three year period as a corrective period. As I offer many times, the market often plays out in threes.

The 1990 low is significant as it marked the beginning of the massive bull market of the roaring nineties. Consequently, the notion that this October, 17 years from low and 5 years from low may mark a peak more significant than anyone is discussing cannot be dismissed out of hand.

After all everyone knows that the market always comes back. It has proven itself time after time. Everyone has learned the lesson. Everyone knows Ben is their friend. Everyone knows the market is out of the woods and the worst is behind us as to the credit crisis. The question is whether what everyone knows is worth knowing. Is the recent truth of the tape a crowded truth?

The important thing to remember about breakouts is that they are many times the most dangerous point of a trade: it is not the breakout in and of itself that is important, but the ensuing price action... follow through is key. The market doesn't move, it is moved! Many times the big players will buy something to bang it---drive something up to create bids in order to liquidate and distribute large positions. And, conversely sometimes the big players will bang something down in order to flush out the stops and accumulate size. This is just the nature of the beast. We're not trading against choir boys here..!

In other words, large range breakouts can define continuations and new advances or they are sometimes climactic action representing peaks. This is especially true after a sustained run. Is it possible that the "insiders" and constituents of the Fed were and are loaded for bull into next week's expiration right into the aforementioned key anniversary dates and needed to spike the market to a new high in order to more easily liquidate? Someone that big usually doesn't get that big and bang that big unless they know something. Was the fix in? It certainly felt like the market was ambushed on Thursday. The vicious reversal came like a thief in the night. The market hit a brick wall at 1576 S&P.Hey, it's not nice to fool with Mother Nature!

The large range reversals on many leading names on Thursday and the rapidity of their decline shows the market is respecting the geometry of the 1576 square out and the cycles. To recap 1576 is an important six squares up from the 768 S&P October 2002 bear market low. Six squares represents a possible major culmination of price as six cycles or squares of 360 degrees is a true square or cube. In my way of thinking, in my experience, six squares of 360 degrees represents the philosophical equivalent to squaring the circle.

Approximately thirty days from the July high the market found a low. I recognized the geometry of that potential reversal as it was setting up and expected a retracement however I incorrectly assumed that another leg down would play out into the fall. I certainly did not envision a test of the high. Approximately sixty days from the July peak, the market exploded on the Fed's slash and burn interest rate cuts. It is interesting that the 20 year anniversary of the 1987 shake up will coincide with next weeks October options expiration, ninety days from the July peak. In 1987 the high was scored on August 25th and although the intraday low was in late October, the closing low of the decline actually occurred approximately 97 days later on December 2nd.

Anyway..! It's October fest, have a jug of volatility and buckle up for the markets seasonal twist and shout. Crowd behavior, it's a livin' thing!

Barefoot on the beach.mp3. http://www.minus-mp3.com/pps/Barefoot_on_The_Beach-Michael_Franks.mp3

GOLD, don't leave home without it !

Gold speculators are currently about as long gold futures as I have ever seen them. At first, I thought this would be bearish and would probably limit any upside in gold in the near-term. But after a little research, I found an interesting analog. See the chart above. Back in 2005 (around the end of September) gold speculators (white line) made a massive bet on gold (red line). They went net long over 200,000 gold futures contracts shortly before gold ripped from $450 to $700+. Talk about smart money!

The $450 level in 2005 was very similar to today's $750 level. I think we could see a similar run in gold once we break through $750 that takes us over $1,000 gold in the next six months.
I've got you under my skin.mp3. http://kilby.sac.on.ca/faculty/dfinlay/Jazz%20Page%20Tunes/FrankSinatra-Under%20My%20Skin.mp3

Let's party like it's nineteen-ninety-nine..!

Coco Rocco Oct 8,2007.

Midsummer nightmare on Wall Street awakens to a dream on Elm Street. As if by magic.

Credit crunch is to equities as a balloon is to deep sea diving. And like a ball plunged underwater, ever since 1987 the market seems to come back from the depths every time. Every precipice, every seizure, every coronary bounces back from the brink. Like magic.

Whether it be the Asian contagion, the Russian debt crisis, the LTCM fiasco, the technology debacle after the 2000, Internet bubble or the recent sub-primevil episode, every bust leads to a new boom. Like magic.

And it seems that the frequency and breathing room between these bouts of panicky declines is becoming shorter and shorter. Witness the bounce back from the February/March swan dive and this summer's swoon.

Do the powers-that-be want to start a new boom to prevent a bust? Does a new boom lead to an even bigger bust down the road?

Last month's jobs report seemed to lend cover to the Fed's slash-and-burn-rate posture. Now, like magic, given Friday's jobs data the economy is doing just fine thank-you-very-much after revisions of last month's numbers. One data point whispers recession, the next one causes little introspection or consternation. Like magic.

The market seemingly takes a magic carpet ride of born-again bullishness. Like magic.

It's party like it's 1999 once again with many stocks erupting as they did into the 1987 top and the top in 2000. But the question is whether it’s real or Memorex: will the S&P mimic the marginal new highs it made in July and slingshot back down? From where I sit any move back below the June highs of 1540 S&P suggests the uptrend may be in jeopardy. The important thing to remember is that when parabolic arcs break, buying pullbacks can be dangerous as experienced money managers will look to take not-so-graceful exits and cut-and-run before the end of the year if their favorite stocks break such arcs.

The Reflation Game.

Mr. Practical Oct 3, 2007.

Chinese stocks are on fire. Take a look at some names and they are up 100% in last few days. The index relentlessly goes up. Once again, let's ask why.

The Chinese government is forcing deposit rates below inflation rates. If investors ignore risk, this forces them to speculate. They are losing value by earning interest on their“money”below inflation rates. They“rationally” take out money and buy things that act as hedges against inflation, like stocks.

This may be fine when the markets set rates since market participants allocate capital based on risk. In a market economy this would never happen.

But in a global economy in which one of the largest participants is a communist country that dictates capital flows and where central banks of other economies are becoming more socialistic as well, we can have a situation where the resulting imbalances can grow to monstrous proportions.

There are only two ends to this madness. Either markets are completely socialized where governments completely allocate capital and dictate to participants the right price for growth and risk, or the market will eventually eradicate the imbalances in a merciless way. But most likely a massive correction would be necessary for governments to complete their socialization process.

So as Chinese stocks fly just remember, it is not because the rally is rooted in better fundamentals, like companies earning more money through better production. It is the result of governments increasing imbalances.

Risk continues to grow.

Open arms.mp3. http://www.lelon.net/mp3s/Journey/GreatestHits/12%20Open%20Arms.mp3

A history run-through for Red October.

Interestingly, the market turned up this year on September 11, which was the 55th calendar day from the July 19 high, 49 to 55 calendar days being a panic or culmination cycle.

However, despite the market's new found complacency, Goldilock may not be out of the woods quite yet. October 4 is seven squared or 49 calendar days from this year's August 16 low. Panicky waterfalls and blow-offs alike many times reverse in the window of this 49–55 day culmination count.

As Mark Twain said, “History, although it may not repeat exactly, often rhymes.” So it will be interesting to see this year if the first week of October is a test high as it was a snap back failure in 1987.

Was this year's capitulation peak in July and spike down in August a mirror image indicating a potential test of the highs in early October to be followed by a decline?

The twenty-year cycle was an integral component in the work of the late, great technician W.D. Gann. Sixty months, or five years, is an important time factor within this twenty-year cycle. For example, in 1992 the low for the year was scored in October. In 1997 the DJIA saw a thousand point drop in October. And, of course, five years later in October 2002 the market clawed out a bear market low.

Interestingly, forty years ago, or two cycles of twenty years ago, in 1967 the market also saw a Red October as the DJIA declined 10% from 943 to 849, into the first week of November. Forty years earlier, in 1927, the DJIA sank from 200 to 180 in the month of October.

The index appears poised for a continuation and an extension to new highs. This job data on Friday could certainly be a catalyst for that kind of move. However, what happens if a market is poised to rally and fails to sustain? So far, the important S&P 1540 level of the June high is holding. However, a break below 1529, the level of the July 20 signal bar sell day, would put the bullish case in serious jeopardy.

The hunt is on, for The Red October !

What did the market know on Monday to cause equities to explode to the upside that it didn't know on Friday?

The answer? As Jack Nickleson would say, "You want truth? You can't handle the truth.... !"

We want reasons, but the cause and effect of stock behavior is tantalizingly vague.

Truth be told that the market is always right, but sometimes doesn't know anything. What does the market know right now and when did it know it is the $64,000 question.

Insider trading may be illegal but I never heard of big money that didn't take a position because it didn't think it knew something the other guy didn't. But, after all, that's why technical analysis works at turning points: there are typically tell tale signs by the big money as it distributes and accumulates.

Call me a cynic, but methinks you don't turn the U.S. Equity-Supertanker on a dime unless the engine room is chock full of agenda. Since when could we ever figure it out? That's the problem, thinking too much. Who was at the door handing out invitations that the market was rational, the the market as supposed to make sense?

As traders all we've got are set-ups. Set-ups are just set-ups and nothing more, nothing less. An edge, not a guarantee. Speculation is observation, pure and experiential. Thinking isn't necessary and often just gets in the way. The trick is to believe what one sees.

So what did Gold see on Tuesday that shook it up, sending the metal down $20? Is the short dollar trade overcrowded? Will The ECB follow suit and lower rates this week? If all fiat paper is devalued will the dollar be graded on a curve? What did the market know about the commodity complex shakedown that it didn't know on Monday?

In my view we should have our answer this week. Friday’s economic data looms large.

Lets face the music and dance.mp3.http://trunghocnguyendu.com/photo_components/media/Lets_Face_the_Music_and_Dance.mp3