By: Jeff Cooper
Hit and Run Morning Stock Report: August 22nd, 2022
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My Advice, Panic Now and Avoid the Rush
“Suppressing the rate of interest is a powerful way to boost an economy otherwise bound for recession, but it’s a dangerous one. It is to finance what opiates are to medicine, a distortion of perception disguised as a cure.” Adam Rowe
Friday morning the talking heads on CNBC were promoting the notion that the rally off the August lows must be respected for its strength and momentum.
The entire week featured a litany of table banging that once you’ve recaptured 50% of the range, it means the lows are in and a new bull market is in progress.
1) The sharpest rallies occur in bear markets. Sharp is drag for strength.
2) The second meme about 50% retraces is “true” after 1951. I seem to recall market history goes back beyond that point.
I seem to recall that there was a 50% retrace following the crash in 1929.
Notice the break of the parabolic arc perpetuated a crash.
The weekly SPX below shows several parabolic arcs.
When the blue arc snapped we got the Covid Crash.
The red arc broke in early 2022.
The black arch was shattered in April leading to the panic into June 2022.
The SPX has returned to the scene of the crime.
Here’s another view:
“Average SPX gain in 43 bear market rallies (>10%) since 1929=17.2%, average duration 39 trading days: this one…17.4% in 41 days; textbook…bear rips always “narrow”, of 17.4% gain ins SPX just 4 stocks-- AAPL, MSFT, AMZN and TSLA contributed 30% of gain.”
B of A’s Michael Hartnett
No one knows if a super cycle like the one from 1929 is over; however, the two greatest downturns in market history saw troughs in 1842 and 1932-- 90 years apart.
Another 90 years is 2022. Does the drop so far in 2022 echo those prior two? Not yet.
That means if 2022 is going to see a momentum plunge on the 90-year cycle, there is Airpocketism on the table.
The purpose of the 1929 chart is to give perspective of what a super cycle blow-off looks like and what can happen afterward.
Notice that the retracement 7 months from the September 1929 all-time high occurred in April 1930 and was approximately a 50% retrace.
Last week's high was 7 months from the January 2022 all-time high and approximately a 50% retrace.
Stocks ran up in a parabolic move to their ultimate high in 1929 just like they did in this cycle.
As is frequently the case with parabolic price moves, the entire advance was retraced.
To add insult to injury, prices went even lower than their starting point in 1921 (blue arrow on the 1929 chart).
Relentlessness roared higher throughout the 1920s and was mirrored by the relentless dive into 1932.
We saw a relentless 8-year run from 2013 when the 2000 and 2007 double tops were taken out, which mirrored the relentless 8-year run from August 1921 through August 1929.
Interestingly, 8 years is 416 weeks and 416 is opposition late August on the Square of 9 Wheel.
So there are several reasons why this August is a big deal potentially.
In addition, note the remarkable cluster of trend lines into this 4300 price zone and mid-August.
If a secondary high has ended or is about to end, where can we expect it to take us?
A weekly SPX from 2016 shows another remarkable cluster of Ghost Lines (extended trend lines) that intersect around 3,000.
Note the symmetry in the undercut of the red bottoms line in the 2020 crash and the throw over of the red tops line at the 2022 blow-off top.
I included the green trend line which ties to 3400 because if that snaps the air pocket to 3000 will be ferocious.
In sum, the first wave down in the bear was 1181 SPX points.
If the SPX has peaked here in wave two countertrend rally at 4325 a Measured Moved decline of 1181 points projects to 3144…very close to the 3000 region where the Ghost Lines intersect.