By: Jeff Cooper
Hit and Run Morning Stock Report: August 23rd, 2022
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The negative internals from last week perpetuated a plunge on Monday.
The DJIA lost 643 points, the SPX lost 90, and the NDX tanked 352.
Monday’s decline was the worst one-day loss since June.
The sell-off from the SPX 200-day moving average and the declining tops line shown last week looks like more than just a “respectful rejection” from the 200-day line.
It looks like something more nefarious.
If my wave count below is correct, the title of yesterday’s report, My Advice, Panic Now And Avoid The Rush, will prove a harbinger of things to come.
The wave count defines a first leg down comprised of 5 impulsive waves into June for a larger Wave 1 decline followed by an A B C corrective rebound.
That means there is a strong likelihood that the most dramatic, and powerful, wave 3 has started.
As always we expect countertrend bounces and backing and filling along the way.
Monday’s ugly tape is consistent with the kickoff of a wave 3 decline with the NYMO falling below ZERO.
VIX and UVXY look like they have broken out of Ending Diagonals (Declining Wedges) which often point to sharp rises.
Remember the mid-August top was well-define by an intersecting series of Ghost Lines that pointed to the 4300 SPX region and mid-August.
The above daily SPX shows the SPX closed meaningfully below the prior important swing high, the early June high at 4177.
Notice the black horizontal trend line that defines the bull/bear pivot for 2022 at this 4177 region.
The SPX rallied just high enough following an Up Gap on August 10th.
That gap was offset on Monday triggering a Jump the Creek sell signal.
That event helped to insure a Trend Day down where there was virtually no bounce.
In sum, the SPX carved out the first two consecutive lower daily lows since the Trap Door buy signal we thought would sling-shot the market in mid-July.
In other words that is the undercut of the rising black trend line from the June low.
Not only did the SPX Phil D Gap from August 8th but, in so doing, it closed below its rising 20-day moving average.
The normal expectation, especially in a Runaway Move like we saw from mid-July, would be to see a bounce the first time the rising 20-day is tagged …as well as a bounce from a test of an important open gap…as well as a test of a prior swing high-- as prior resistance (4177 ish) SHOULD act as new support
These look like 3 strikes on the bulls.
The “strike-out” suggests wave 3 is growling.
The bear could throw a “no-hitter” if the prior swing low at 4080ish is lost.
Nevertheless, the market is not a fine Swiss watch and we could get a bounce from what is a probe into this gap and the horizontal black trend line.
That said, a retrace now to that 4177 region is guilty until proven innocent.
Just above is the 4193 square noted late last week which was lost like a knife through butter.
So that becomes short-term resistance now.
This is Jackson Hole, so volatility is on the prowl with Fed Govs having walked back Powell’s perceived “Coo” this month.
The rising trend line from mid-June near 4120 looks like grist for the Bear Mill going into Jackson Hole.
And, of course, the bulls will be eyeing and praying for an inverse right shoulder on a test/undercut of the now rising 50-day line (red).
Two things on the radar, trade today below Monday’s low will turn the important 3 Day Chart down.
The normal expectation following that is for a rally ATTEMPT…especially since this would be the first such turn down since mid-July.
If the SPX should trace out an inverse right shoulder on a drop toward 3900 and bounce, we must be mindful that a subsequent break of the perceived inverse right shoulder will trigger downside acceleration.
I don’t want to get too far ahead with the mapping, but IF we should see an Inverse play out a break of that inverse right shoulder, it will trigger a Blade Runner sell set signal.
Since fast moves come from failed patterns that should provide a superior shorting opportunity.
Finally, checking the Q’s shows its secondary high is an Island Top.
90 degrees down from the recent 334 high is 316 region. It’s been broken…so far.
180 degrees down is 298.
The QQQ rising trend line from June ties to 301.
A Ghost Line connecting the early June high and the July 21st high dovetails at this 301 region.
Downside follow through in the Q’s opens the door to the 300 strike.
Regaining the 316 “square” opens the door for a possible backtest of the overhead 20-day moving average at the 320 strike.
If the Q’s snap back to 320 on Algomatic Fed action, we will look to add to QQQ puts.