Last week, I said that the rubber has hit the road and that my Super Chart was, for the first time in nearly five years, a tad below my all-important Super Chart Keyline. Now, make no mistake about it, I take this very seriously when it happens because it happens so seldom, only 16 times since 1965.
In all the columns I have written, I have always told you that as long as the Super Chart Keyline holds trading activity above itself, I would not amend my outlook for the market. I also said that if we got a Major Market Turnaround (MMT) signal, all bets for the outlook I wrote about were off.
Well, that MMT has yet to finish off its signal. We are looking at the third week of work just a bit below the Super Chart Keyline and we will need to close three more weeks below the Keyline to get confirmation on the signal. It takes six consecutive weeks below the Keyline to "finish" (confirm) a signal. I will be keeping you up to date as the next three weeks progress. The potential implications are quite broad if the signal does occur, so be sure to stay tuned.
For the moment, the key support at 1370-80 on the S&P cash index is under attack. Whether it will hold or not is a big question. I can only tell you that the investors of the world are not snapping back like the buyers they were recently. Does that mean recession? Don't know. I do know that we will have an answer very shortly, in three weeks to be exact.
I will be including my Super Chart in next week's column, as there will only be two weeks until the signal finish at that point and the Super Chart should be telling us a lot by then. And remember that Jan. 29 is the Fed FOMC meeting and interest rates will be a prime subject until then.
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And have you noticed how many analysts are now talking about the money supply action? You should. Dr. Bernanke is slowly being recognized as challenging all the sacred cows of the financial world by using money supply as his lead dog in meeting this weakness in the market.
Will it work? I suspect so, but none of us will really know until the event we are in is over. Should be fascinating. Stay tuned!
Now on to a matter I spoke to you about last week. I told you I would tell you of another interesting event that is part of this current market activity. I told you that something called the PPT might be of interest to you. Well, here is the scoop on the PPT. Its full name is Plunge Protection Team, a name invented by analysts like me to satisfy our need to have names for everything.
You need to know right up front that the actual existence of a PPT is not even provable. There is, of course, official denial by just about every government official that one can corral and ask the question, "Is there really a PPT?" So, read the following with that in mind.
Here is the story of the PPT as put together by many analysts that swear it does exist and has since the 1987 market crash. You may recall that the most outstanding feature of that 1987 crash was a one day drop of over 500 Dow points, and that was in the days when the Dow was in the 2500 range. So, that one day drop was HUGE, really huge!
[Editor's Note: Special: A Bubble on the Verge of Bursting. Act Now.]
In the aftermath of this huge drop, the market makers that be — regulators all — decided that they would put in place protections against such an event in the future. They made new rules that if the Dow dropped by a pre-determined amount, the trading would be halted temporarily.
The idea was to allow traders to get their bearing for a moment while the markets stood still and hopefully to allow them to see that maybe the drop going on was being overdone, or some other such decision that might stop or slow the drop going on.
Well, all these rules were very public and talked about and a number of times the trigger for the halt to trading was actually pulled, as a few sell-offs did gain unusual momentum. Several times plunges were even averted and reversed by the use of the stop trade rules. The outcome of the temporary halts was almost like what the "powers that be" wanted.
But, many analysts felt that the halts by themselves did not satisfy many of the "powers that be." It was rumored that somewhere in the bowels of some bank or brokerage or even in the Fed complex, there was a group empowered by the Fed (or some major government body) to buy into the market when it either looked shaky or when it might serve to "punish" the short sellers (those driving prices lower) by driving prices up against their positions.
Now this kind of activity is not anything really new. It has been done for years by governments that want to protect their currency. If the currency was selling too low, the banks or some government body so empowered by the subject country just entered the market and bought the currency of their country and the price of the currency stabilized or went up.
In this instance, however, the buying was not of a currency, but in the stock market. And the buying was done to accomplish the same thing that currency buying did — punish the short sellers. Now, let me repeat, you must realize that this kind of activity is not something that is openly authorized by anyone or any agency in government and they do deny that it exists. But, my chart models say different.
The construction of my intraday model charts is quite sensitive and shows any unusual patterns of trading and for some years I have been able to tell when the PPT looked to be in action. The most obvious PPT action occurred during the week of March 14, 2003. One day during this week the S&P jumped over 35 points in one single move. This in a market that was beaten down, churning, and directionless. The move proved pivotal and the stock market never went down again after that event.
I am sure that move hurt the short sellers, who for many months had been pretty much having things their way. And, when I took a look back on my charts at that time, the charts showed me that it appeared that for several months the PPT may well have been in action. But, it was the huge March move that seemed to exhaust the sellers and they just disappeared.
After that event, I noticed also that for the next 13-14 months whenever the market seemed directionless or being sold down, there would often be a sudden spurt and the market would jump considerably for no reason at all.
I also noticed that the pattern of the jumps was almost exactly the same each time. First, there would be a fast jump of 3-5 points up in the S&P followed by maybe a five minute period of sideways movement. Then, there would be a second sharp high volume move of 3-5 points and, again, a second sideways period of 5-10 minutes. Finally, a third push up of 3-5 points. After this activity, the market generally would just work a relatively narrow range the rest of the day, as surprised traders tried to see where the new supports and resistance levels were located.
But, in June 2003, once the S&P moved above the 1000 S&P level, these three spurt moves seemed to get fewer and farther between. Finally, they disappeared altogether. That is until the last two weeks or so. I have again been seeing the three spurt moves accompanied by the characteristic high volume pops, too.
Could the PPT be at it again? Who knows, I certainly can only guess and everyone that might be responsible will, as before, firmly deny the PPT even exists. But, one believer in the PPT, besides me, is the grandfather of this analyst writing business, Mr. Richard Russell. He hasn't said anything so far this time around, but he was a good sounding board and a strong advocate in the 2003 period that there was PPT. Wonder what he would be saying these days? Hmmm.
Well, just thought you might like to know that in these days of high volatility, there may well be a secret group sort of watching over things — at least to this analyst's view of things. Wonder if their activities might even determine the final direction of the current churning. Fascinating!
So, for this week, that's all from my desk. Do hope your coming investing week is a good one. In the meantime, you keep in touch. I do! See you next week.
I had a friend call me yesterday about my Super Chart and his question was quite simple: Why does the Super Chart generate so few signals. Some of the services he uses will get a signal quite often, sometimes several in one year. Well, the answer to that is simple. I designed the Super Chart Keyline to tell me when there was a clear and undeniable shift in the major sentiment of investors.
The Super Chart will never get me out at the top or get me in at the bottom of any cycle. It is not built to do that. While I will never get the top 10 percent or the bottom 10 percent of any major move, I will consistently get the middle 80 percent of those major moves.
Those that want the other 20 percent have my blessing in trying to get it on a consistent basis. I have been at this for over 40 years and I have seen a lot of traders make a lot of claims about how to get that other 20 percent. But, most of them are not around today. However, the Super Chart is. I think that speaks for itself.
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