By: Jeff Cooper
Hit and Run Morning Stock Report: March 3, 2023
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The three trend lines on the daily SPX below are crucial and explain the price action over the last 6 to 7 sessions.
1) The red trend line is from the December lows. The index violated it on 2/24 and tailed up leaving a Lizard buy setup -- a new 10 day low with an open and close in the top quadrant of the day’s range.
2) The SPX followed through the next day but got rejected from the black trend line connecting the October low and the December low -- reversing to close on its lows.
3) That failure perpetuated a drop below the aforesaid red trend line to the purple trend line. The purple trend line is a close only line connecting the low close for 2022 with the low close at the December low.
The SPX opened below the purple trend line at the key 3940 level and 200 day moving average on Thursday, setting an Opening Gap Low.
After carving out a micro intraday Cup & Handle, the SPX exploded putting in an outside up day. It Pinocchio’d the red trend line which has dominated the last few months of trade and closed right on it.
The daily SPX above shows that the index closed right on the red trend line as well as the overhead 50 day moving average.
Interestingly the SPX left an outside up day on 2/23 after testing its 50 day moving average but failed to follow thru.
Now the 50 day ma comes back into play but this time as possible resistance versus support as on February 23rd.
In sum, the index left an outside up day on a test of its 50 day ma on 2/23 and faltered while on Thursday it left an outside up day from a test of its 200 day moving average.
Will we get another gap down today? And if so, will it lead to yet another test of the 200 day moving average -- and the purple close only trend line?
How many tests of resistance and tests of support can this Jello deliver before a directional move plays out?
Yesterday’s report offered that a sharp downside directional move (versus Jello) would take place when breadth turned negative.
Thursday’s breadth for a 30 point SPX advance and a 340 point DJIA advance was extraordinarily weak.
If this weakness in market breadth carries into a subsequent decline, then extreme downside breadth will likely follow in the hours and days ahead.
This is the presumption if this second outside up day does not stick -- if the second mouse does not get the cheese for the bulls.
Yesterday or today is the 7th session of this Jello and in tandem with an option expiration.
So this should be an interesting day.