June 12th, 2012

Cramer and One of My Five Lines in the Sand

I informed Members in their June 3, Weekly Recap Report that “the market has been in a 30% trading range (1050-1365) as the economy works its way through the ruins brought on by the 2007-09 Financial Crisis.  While we’ve been glued to news stories about one crisis or another over the past three years, we fail to see that, underneath the surface, the economy and the market have been in a healing process.”

I included in that Report a chart onto which I inserted five critical trendlines, levels at which the Market has pivoted (reversed direction) from 5-7 times over the past two and a half years.  I also suggested that Members “click on the image to enlarge it, print it out and past it over your computer …. we’ll be looking at it throughout the summer watching for the turn.”

On CNBC’s Fast Money show tonight (to see clip, click here), Cramer revealed a bold prediction by Carolyn Boroden, a highly regarded technician on Wall Street.and one of his “favorite” technical analysts in an “Off the Charts” segment.  The analyst predicted that 1265, the point at which the market seemed to have turned up last week, would be a line in the sand.  It might actually turn out to be the low for the year followed by a run to as high as 1465.  That technical analyst based her interpretation of the chart mostly on Fibonacci time and level measurements which were beyond my understanding.  But what I found most interesting is that the levels mirrored almost exactly the trendlines I’d presented to Members two weeks ago.

Now that Cramer has pulled the covers off a market timing analysis that closely correspondents to one that I distributed to Members a couple of weeks ago, I wouldn’t be committing any breach with Members’ by now including that chart here:

Interestingly, Cramer and I aren’t the only ones having focused on the importance of the 1265 level.  Yesterday, in the Minyanville post The Single Most Important S&P 500 Level, Kevin A. Tuttle wrote that over the last dozen years, the SPX has crossed, retested, and breached this level 12 times.  According to Tuttle,

“When adding the melodrama and sensationalism, Wall Street scandals, global tensions, political finger-pointing, misappropriation of funds, struggling economics, quantitative easing, and the US’ skyrocketing debt load, it can become somewhat overwhelming to ascertain potential direction.  It’s the whole “forest for the trees” idiom. My firm believes that no single individual or institution has the mental capacity, intellect, or quantitative ability to comprehend the amalgamation of all global fundamental factors to derive a meaningful conclusion about the general direction of the market without employing the demand factor, or better said, the law of supply and demand.”

I, said as much to Members in my Report of two weeks ago.  I confessed that I
“…. don’t have enough time for that and throw my hands up when it comes to trying to evaluate and assess the potential impact of the news flow from around the world.  I find it overwhelming and I just don’t feel up to the task.  But I can look at the above chart and identify important levels where the supply and demand for stocks came into balance and created turning points in the past (even if temporarily) and may, with a high degree of probability, do so at the same levels again in the future.”
The low of last week may have been one of those critical turning points.  If it was, then it behooves investors to begin putting some more cash to work because the summer break may be short and the run to higher ground may begin sooner than most anticipated just a month or so ago.
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