Hit and Run Morning Stock Report: August 11th, 2022

By: Jeff Cooper

The Big Picture

The SPX’s 2022 crash is a Declining Wedge that bottomed on June 17th.

However, the SPX struck an initial low on the week of May 16th.at 3810.

The index has only seen one weekly close lower than that-- on the week of the low, the week of June 13.

This may be relevant time-wise as 90 days/degrees from the week of May 16th is the week of August 16th.

Actually, the initial low in May was on May 12 which may point to this Friday, August 12.

Price-wise, 421 or 4210 squares August 10/11.

On Wednesday the SPX closed at 4210.

As well a 50% retrace of the entire rally is 4227.50.

Long-time readers know that one of my trading rules is if an item retraces 50% after a washout, it often means it’s going back to the prior highs…if not well beyond.

That is not my expectation; however, should that occur, I think it would equate to a nominal new high ala the 2007 Pinocchio of the 2000 top.

One of the reasons I don’t think that is on the table is that cycles are set to exert serious downside pressure this fall.

Another reason is the pattern from 2017 which shows a large Megaphone Top pattern.

Another factor is the massive Saucer top on the DJIA starting in the spring of 2021.

This spells distribution.

I doubt the DJIA can plow through this overhead resistance.

The pattern is a harbinger of another plunge most likely during the second half of 2022…plus.

Arguably this Saucer Top is an inverse Cup & Handle with the Handle being the current counter-trend rally.

The counter-trend rally kicked off from a test of the pre-Covid Crash highs from Feb 2020.

The DJIA completed a Neck Line at the June low with the spring 2021 low.

Once this Neck Line is broken, which will coincide with breakage below the Feb 2020 pre-crash peak, the market will plunge.

So the Rule of Multiples is in effect on the next decline:

1) We have a massive Saucer Top

2) The DJIA is working on the Handle portion of an inverse Cup and Handle

3) A Neck Line has been established, which, when broken, will trigger a Get Out Of Dodge sell signal amongst technicians that have been around for more than a few cycles.

Robert Rhea was a granddaddy of technical analysis from the 1930s.

His perspective was that Bear markets have three phases:

“Bear markets seem to be divided into three phases: the first being the abandonment of hopes upon which the uprush of the preceding bull market was predicated; the second being the reflection of the decreased earning power and reduction of dividends; and the third representing distress liquidation of securities which must be sold to meet living expenses. Each of these phases seems to be divided by a secondary reaction which is often erroneously assumed to be the beginning of a bull market.”

This rally is a secondary reaction between the first and second legs of the Bear.

It has served its purpose by convincing many that the rally from June is the beginning of a new Bull.

Friday’s reaction to ONE CPI number is typical of the Algomatics going full risk on.

They do the same on a bad number.

One number does not make a trend.

Mr. Market does his job and works his magic by shaking out the shorts and luring back the longs…to the dismay of both.. just at the wrong time for both as the middle phase of the Bear looms.

Mr. Market is a psychological master. He does not want the shorts to benefit from stock market declines for too long.

He wants everyone to lose, ultimately.

Even the best trader that ever lived, Jesse Livermore, who made $100 million in the 1929 crash, blew his brains out.

That’s why I Hit & Run. Taking bites of the apple before the worm turns.

Wednesday’s CPI stampeded longs and shorts alike despite the inflation rate still being north of 8%.

The Fed cannot be happy about yesterday’s rally.

I’m sure we’ll hear some Jawboning any day now.

In late July we said the SPX Monthly Swing Chart would turn up in early August.

It did on cue.

The question was always whether the index will carve out TWO consecutive monthly higher highs satisfying a monthly Minus One/Plus Two sell setup-- as occurred in May 2008 prior to the Lehman Crash that fall.

Today is a Bradley turn date. They can be highs, lows, or nothing. However, when the market spikes sharply into a Bradley turn date it typically is something.

And this ain’t a low.