August 14th explained... traders have memories.

On August 11th, I posted the following: "Market types like myself are prone to make predictions. We don't start off wanting to make predictions as we realize the danger, indeed the folly, inherent in doing so. After all, we could be wrong.

Nevertheless, the challenge is there, it's always there- daring you, sucking you in until you just blurt out something that, as soon as it's said, you immediately hope won't come back and bite you.

Ever since Aug 14, 1982 I've made the same prediction... that on or about that date, August 14, (give or take a day) the market will break big one way or the other. This year is no exception, I expect the market will break downside on or about August 14. There's the prediction. I wish it were a forecast, it would give me some wiggle room like a weatherman. A prediction must come true.

On the 15th or 16th I'll explain how I arrived at that conclusion."

AND SO HERE'S THE EXPLANATION:

1982, it was my first full year as a stockbroker, and the recession at that time was severe in the U.S. It began in July 1981 and ended in November 1982.

My firm at the time, Prudential-Bache Securities, was absolutely bearish on their outlook for the market. August 13th came and the SPX bottomed at 101.44 and as the market usually does it started to react positively to continuing bad news, meaning that all the bad news was known and built in. Not unlike March 6 thru 9th of 2009.

(As an aside, Prudential-Bache missed the 1987 crash as well. The WSJ said they were so bullish they drove the herd right off the cliff. Just because a Wall Street firms says something, doesn't mean they know what will happen next. Maybe Goldman is an exception since they seem to be the de facto 4th arm of the government. That's why you want to learn to trade, have a plan and trade the plan.)

By the end of the period from the 13th thru 19th of August the SPX had boomed a whopping 10%. Back then a big move in the SPX was 3 points, it's all relative.

I distinctly recall, ignorant newbie that I was, the discussions back and forth between N.Y. corporate office and all the branch offices. The question being thrown to our then market gurus in N.Y. and all other guru types who missed this turn in the market was the same, "How could you idiots miss this turn?" The language on our squawk box was just laced with screaming profanities and name calling as brokers pummelled N.Y. until they finally said it, "We f----d up, okay?!" You could have heard a pin drop.

My lesson learned back then was pay attention to market bottoms and market tops. Pay attention to over-bullishness or over-bearishness.

I've been bearish for the last month on this market. Early last week I went back to 1929 on the SPX chart on a daily basis. I looked at every week that included August 14th. I concluded, as I have before, that when the market has had a lead in trend (regardless of bull or bear) to mid-August that the trend will reverse during that week.

Non-believers will simply have to look at the SPX chart to confirm.

But there's more. The market, going into a known horrible month, September, tries to shift into a defensive mode more often than not. At the end, or towards the end of a run as we've had since Mar. 9th it didn't seem too unreasonable that it couldn't keep up it's momentum; that if previous August history was an indication, and in keeping with tradition, the market would use this time to pullback 5%, if not outright correct 15%.

I drew my trendlines, Fibonacci retracements, Fibonacci fans, checked and rechecked support resistance prices and overlaps of all of the above. I read volume on DIA and SPY. I noted the QQQQ was breaking down. I fit as many pieces of the puzzle as I could onto one chart, paid close attention to behavior for the last week or so, noted what usually happens mid-August and made my prediction.

And recall that it was a prediction, not a forecast. I can't recall trying to absolutely call a reversal date as much as I did on this one. But then, that's we market types like to do. Well, at least that's what I like to do.

It is always about odds and probability as well as fear and greed.

October is known for crashes, but September is more consistenly bad for the market since big money looks to start dumping losers they may have held for the past 6 or 9 months. This fits in with the tax loss selling that starts in October as well. If you throw in an unexpected economic event of any type while that normal market behaviour is going on... you have the elements for a crash.

If you need more clarity on all of this, contact me.