By: Jeff Cooper

Hit and Run Trading Bonus Report - August 21, 2023

Crash Potential Is High

There is a strong resemblance between how this leg down from the July 27th, 2023 peak is unfolding and the pattern in the SPX in early 2022 as the Bear Market started.

The first chart below is a daily SPX from the fall of 2021 through early 2022 showing the Rule Of 4 Sell signal  in January 2022 that coincided with the 4th break of the 50 day moving average.

Markets play out in threes; a break of an angular of flat 3 point trend line I refer to as a Rule Of 4 Sell signal (or a Rule Of 4 Buy signal on breakouts above declining or flat 3 point trend lines).

This is because the 4th  above or below triple tops or bottoms follows thru.

In early August 2023 the SPX triggered an Angular Rule Of 4 sell signal following through below its 50 day line with authority.

Let’s look at the boom and bust in 1987.

1987 is relevant because it is 36 years ago (6 squared years).

As well, 36 is 180 degrees straight across and opposite this week (August 21st specifically).

The high in 1987 was August 25th. Perhaps we see a return rally high around August 25th if we hold Friday’s low and rally.

The SPX high in August 1987 was 338.

This is synchronous with the QQQ high of 338 in July 2023.

338 is straight across and opposite this week.

In other words, the SPX high in 1987 was a time/price square-out.

1987 was another year where following a strong runup, we got a summer Rule Of 4 sell signal.

The SPX snapped its 50 day moving average twice before a short-lived rally attempt to reclaim the 50 dma.

Notably that attempt to reclaim the 50 failed on a back test of the Ghost Line…the broken 3 point trend line.

The third time proved to be a charm for the bears.

The SPX accelerated as it broke the little double bottoms from September.

The market crashed when the 200 day moving average failed to act as support.

We have pointed to the synchronicity in 1929 with the run up from the spring to summer top in 1929.

That was 94 years ago and 94 points to mid-July when the market was topping this year.

It was 58 years between 1929 and 1987.

On the Square of 9 Wheel, 58 points to August 1st. The market started down hard in early August.

Remember, it is 36 years from 1987 to 2023 and 36 squares this week.

In 1929, the DJIA broke a short-term 3 point trend line from a May low following which it dropped to a bottoms line from late 1928.

This is similar to the current pattern with the SPX dropping to a bottoms line from October 2022.

In 1929 the DJIA rallied sharply for 6 to 7 days after hitting this long-term trend line.

When the DJIA rolled over triggering a larger Rule Of 4 below the line that had defined support for all of 1929,  the crash was triggered.

In sum, the SPX satisfied a 360 degree decline from the 4607 high on Friday.

The normal expectation would be a bounce.

This is not your normal market.

Below Friday’s low opens the door to a full 540 degree decline to 4208.

This ties roughly to the 200 day moving average and a bottoms line connecting the October 2022 low and the March 2023 low. This critical support region is 4130 this week.

There is beaucoup symmetry at the 4200 region as 4198 also represents a 50% retrace of the March to July advance.

4049 is the fail safe region…  a 50% retrace of the October 2022 low to the July 2023 peak.

Four factors are in place for a perfect storm:

1) September is hurricane season in markets.

It is what is historically the weakest and tumultuous seasonal periods.

It will be a September to remember if the SPX snaps 4200 and then 4049.

2) the structure suggests an Intermediate Wave 3 of 3 down is on deck.

3) Time and Price synchronicities exist between 1929, 1987 and 2023 as well as 2007 (July 19 primary top) and 1990 (July 13th top).

3) The market has overbalanced in time and price the largest correction since the 2009 low

4) The major 20 year cycle topped in 2022: a major secular bull market started in 1982 (AUGUST), a major bear market low occurred in 2002 (October). Consequently we have a 20 year low to low to high cycle on the table in synch with an unwind of a 40 year debt buildup.

It will be a September to remember.

Nothing shouts of opportunity like the potential of a 3rd of a 3rd wave down coming off extreme bullishness in what is historically the two weakest months of the year.

Crash potential is high.