It’s been a powerful market that has overcome domestic and geopolitical issues, and also overcome internal vibrational readings that would’ve knocked out lesser patterns. The last week of August is one of the slowest trading weeks of the year, says Jeff Greenblatt.
I tip my cap if you are reading this on a nice beach or in a watering hole.
In the old days, journalists and traders could relax the last half of August as not much happened. Now folks are complaining there is so much news they don’t know how to keep up with it.
As traders we must focus on two fronts.
First and foremost is the pattern.
Then you must understand the psychology underlying that pattern. Realize the news event manifests when the cycle matures. For instance, the market dropped in early February right after the Dow (DJIA) hit its 610-day point in late January. Recall it dropped when the FISA scandal was officially made public.
Then again, Facebook (FB) topped on day 618 on a poor earnings report the revealed more scandal. While markets have recovered, Facebook did not. I don’t recommend trading news events but if you can reverse engineer the cycle points and connect the dots you can learn to anticipate when such an event is likely to react one way or the other.
This is a complacent market that ignores bad news until it becomes personal.
What does that mean? It means the crowd understands Microsoft (MSFT) might be a monopoly but doesn’t respond until the judge says so. That’s what happened in March 2000 when the internet bubble popped.
Zuckerberg appeared before Congress to discuss political bias. The market ignored it until he said the company would have issues with earnings going forward. Now everyone sees there are issues with the social media companies. Markets likely won’t react until there is Sherman Antitrust action.
All of which gets us to today. On the third to last trading day of August the Dow put up a very interesting reading. I’ve been watching this closely the past couple of days. With a low back in March of 23344.52, it has a square root of 152.78. I’ve been looking at 26169 because it has a square root of 161.77.
Why is that important? Using the Gann square of nine formula, take the square root of the high, subtract the square root of the low to get a factor. The factor is the difference of the square roots. Take the factor and multiply by 180 to convert to degrees. In this case we get a factor of 8.99. Multiply by 180 and we get 1618 degrees. In other words, the rally would vibrate with a golden spiral of 1.618.
What happened on Wednesday? The high in the Dow established early is 26167.94 which is within a point of the target. Did I think it would stop there? I had no idea because sometimes patterns have a way of blowing through these readings. Other times they stop right on the button. All I can tell you is if the Dow stopped at that level, I’d know why.
Should traders expect this to hold? It would be prudent not to impose your will on the market. If it can’t make more upward progress and starts to weaken, you should take it seriously. This is Labor Day weekend and next week is September which is statistically the weakest month of the year for the stock market.
Let’s assume for a moment this high sticks. We’ve discussed how the country is divided and could be in for a nasty ride from now to November. The bull fears anything that will get in the way of the Trump rally. If the market rolls over on a calculation like this, it will be exponentially more likely to respond to negative news events because the cycles drive the charts.
Why does it work this way? Prechter explained in his landmark book called “The Wave Principle of Human Social Behavior and the New Science of Socionomics” that human DNA is wired to the golden spiral and when it kicks in, the mass crowd psychology changes.
For the Dow to stall where it did is interesting enough, let’s see if there is going to be more to it.
