By: Jeff Cooper
Hit and Run Morning Stock Report: March 13, 2023
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Do The Wheels Come Off?
“We put thirty spokes together and call it a wheel, but it is on the space where there is nothing that the utility of the wheel depends.”
“If your memory serves you well
You’ll remember you’re the one
That called on me to call on them
To get you your favors done
And after every play had failed
And there was nothing more to tell
You knew that we would meet again
If your memory served you well
This Wheel’s on fire
Rolling down the road
Best notify my net of kin
This wheel shall explode.”
-This Wheel Shall Explode, Bob Dylan, Rick Danko
“Markets seem on a trajectory lower into the cycles we have been eyeing that exert their influence into March 15-17.”
We wrote the above in Thursday morning’s Hit and Run Report, The News Breaks With The Cycles, Not The Other Way Around.
And what a week for news it was.
The second largest bank failure in the U.S., SVB, on the anniversary of Bear Stearns going belly up 15 years ago.
The Slide started last Monday, March 6, the anniversary of the Bear Market low in 2009.
Legendary market operator WD Gann spoke about anniversary dates in his books saying markets will often make significant tops and bottoms on or about the same day of the month in different years.
The Panic of October 1907
The October 1987 crash
The October 1997 Asian currency crisis
The October 2007 high prior to the Great Financial Crisis
The March 2000 Bubble Top
The March 2003 start of a bull market advance
The March 2009 Bear Bottom
The March 2020 crash low
The tension is on the tape as to what the high on March 6, 2023 will ultimately augur in.
The Street is blaming last week's decline on the failure of Silicon Valley Bank, but these are manifestations of social mood which are driven by negative cycles exerting their downside influence.
In the big picture, we’re in the Gann Cycle of 90 years or so years of debt buildup that unwinds… a la the 1930’s and half that cycle in the 1970’s.
The popular consensus on the Street has been that rising rates would be a boon to bank stocks, but the lower for longer rate policy of the Fed has created disastrous unintended consequences triggered by the velocity of their rate increases.
As we came into last week when the SPX gapped up and ran 30 points on Monday I sent out an alert on the Hit and Run Twitter Feed to watch the behavior carefully as the index turned its 3 Day Chart up on a probe of its overhead declining 20 day moving average.
The Hit and Run morning report went on to note that if the market structure was as bearish as I thought, the turnup in the Weekly Swing Chart with idealized resistance at the 4077 “square” level on the Square of 9 Wheel should define a high soon in terms of both time and price.
It did with the SPX reversing from Monday’s high of 4078.
So we had a trifecta sell setup on Monday:
1) A turn up of the SPX 3 Day Chart
2) A Holy Grail sell setup (a backtest of the declining 20 day moving average).
3) A turn up of the Weekly Swing Chart.
The result was a Lizard sell signal on Monday’s close. A Lizard sell is a new 10 day high Topping Tail.
Tuesday we noted that with the SPX dropping in an impulsive 5 wave fashion, the close-only Maginot Trend Line connecting the October low and the December low at 3960 would be broken threatening immediate breakage of the 200 day moving average just below at 3940 and perpetuating accelerated momentum..
The Maginot Line did snap, triggering a Rule of 4 Sell signal (a break of a 3 point trend line) and a drop below the 200 day moving average.
The SPX followed through below its 200 day ma with authority on the Friday weekly closing basis opening the door to our projection to the 3700 region near the June lows. It could happen very quickly.
As flagged on the Hit and Run Private Twitter Feed, the pattern is eerily similar to that preceding Black Monday on October 19, 1987.
In sum, last week’s action validated our premise that the elusive dramatic Wave 3 of Wave 3 to the downside has started. Our expectation that cycles would exert their downside influence into mid to late March our playing out.
Friday’s slide was on very heavy volume and nasty negative breadth.
New Lows rose to 209, the highest number since November 4, 2002.
Thursday’s large range outside down day closing below the SPX 200 day moving average was accompanied by a large range outside down week.
There are two trend lines that are not broken. Yet.
If they break, the wheels could come off.
A weekly SPX shows a trend line connecting the March 2020 low and the October 2022 low ties to the low 3700’s this week.
A weekly close-only trend line connecting the March 2020 closing low and the October 2022 closing low ties to 3800.
A break of 3800 should see a fast move to the 3700 region and a test of the June low.
Interestingly, using the 407 SPY high last week gives 90 degrees down as 387.
The SPY closed at 386 on Friday indicating vulnerability.
Downside continuation opens the door to the next 90 degree decrement lower at 367.
The June closing low, 366.
Caution is warranted.
Two conceptually correct trading principles are in play:
1) Fast moves come from failed moves. We got a failed move to reclaim the SPX 20 day moving average last week.
2) Fast moves often come from 3rd lower highs. From the January 2022 all-time high early February 2023 installed a 3rd lower weekly high on the SPX/SPY.
Based on anniversary dates and Time/Price Square-outs from my Square of 9 Wheel are validating my thinking that the period from March thru May 2023 is a Panic Cycle.
For example, we are 6 squared years from the 1987 October crash.
36 aligns with May 17, the start of the NYSE 231 years ago.
36 aligns with/vectors May 17th.
231 is opposite early April which is also 180 degrees opposition the important October 2022 low.
More and more it looks like the question “what is money?” will one day be regarded as the defining question of this era.