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Trading Lesson: Turn Down the Lights, the Party Is Almost Over

The music is slowing, and the chairs are dwindling. Don’t be the last man standing.

Am I dating myself by referencing Dandy Don Meredith on Monday Night Football? For those of you too young to have been around in the Howard Cosell era, when the game was getting out of reach, Meredith would sing and he was rarely wrong, says Jeff Greenblatt.

It probably wasn’t good for ratings, but he was very entertaining.

We are not ready to turn out the lights just yet, but we are very close. This time window season was one of the toughest I’ve had to manage because it kicked in on the last possible day. Last week we did end up with buy the rumor, sell the news on the 4.1% GDP. Most of the market hung on despite the fact Facebook (FB) got taken to the woodshed right there on the 618th day of the rally from the February 2016 bottom.

My next thought was whether the Facebook event was a black swan. Most black swans manifest on either a terrorist attack or a bank failure. This was neither although the spirit of a black swan is nobody saw it coming.

While many saw Facebook’s problems, nobody anticipated it coming for last Thursday. While the best I could do was manage this massive 610-18-day time window, when it finally hit the news event manifested, almost by magic.

On Friday markets sold almost from the beginning. There was no towering tail to telegraph a massive top. On Monday they followed through to the downside but on Tuesday they bounced off the low. That is the problem right now.

When I looked to the charts on Tuesday morning, I was surprised to find some interesting calculations for the low.

The best one is right here in the NQ. It is a vibration of 66 hours down at 7166. Additionally, the square root of 7166 is 84.65.

Why am I making a big deal out of this? Based on some of my teachings here, this is a very good Kairos vibration. In fact, its very similar to the S&P 500 (SPX) bottom a couple of days after Brexit which was down 91 hours at 1991. That spawned a rally that goes on to this day.

chart 1

But we are not in Kansas anymore. We are now two years progressed from that point and markets are tired. We are also on the other side of this big-time window. I’ve told you for months the Dow (DJI) topped at 610 off its August 2015 bottom. We’ve been in a divergence for months.

Today the Fed didn’t do anything with rates and this is a nothing burger story this time around. But right in that sequence the Dow did manage to take out Monday’s low. That’s not good. Yes, it recovered but it showed Tuesday’s recovery is vulnerable.

The key point here is the good reading was not in the Dow, it was in the technology branch of the Emini. Markets are manifesting yet another fresh divergence. Let me put it to you this way. Markets are a function of non-linear math. What that means is we could have the same exact same tendency for a reading that we had after Brexit yet get two entirely different results. Why? It’s like anything else, we must take the reading in the overall context of the environment.

Where does that leave us now? If the NQ and then the NASDAQ takes out the low set earlier in the week, it will be because something much larger in a new direction is developing.

chart 2

As of this writing, the NQ is still defending but its weak. Based on the reading, it should be doing better. I’ve even included the old SPX chart so you can see for yourself. Right out of that vibration, the SPX gave us a three soldiers formation, candlestick aficionados know it is just about as bullish as a formation can be. Not only that, it was staring the Brexit panic sequence right in the face and bulldozed right through it. Here we have the Facebook sequence which I catalog as an actual crash on a 1-minute chart.

The quality of the low in the NQ is very good. If it is taken out, odds will increase exponentially we are on the cusp of a major correction.

The music is slowing, and the chairs are dwindling. Don’t be the last man standing.

If you are long and have profits to protect, now is the time to take inventory and put in stops.

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This article was originally published by Founded in 1981, MoneyShow is a privately held financial media company headquartered in Sarasota, Florida. As a global network of investing and trading education, MoneyShow presents an extensive agenda of live and online events that attract over 75,000 investors, traders and financial advisors around the world.