By: Jeff Cooper
Hit and Run Morning Stock Report: March 16, 2023
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Technicals Lead Financial Chickens Coming Home To Roost
"Men it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”
-Charles MacKay, Extraordinary Popular Delusions and the Madness of Crowds
Financial conditions have tightened and we still have inflation. This is the Powell Pickle going into the Fed meeting next week.
The week following this March Fed decision will be the end of the Gann Panic Window counting from the February 2 pivot high.
Dependence on low interest rates over the last 12 years caused things to start to break.
When the mainstay of businesses depend on a model where money is next to free, things can unravel quickly when free goes to hell in a hand basket.
As for banks, they either thought that interest rates would remain low “forever” (it didn’t hurt that Powell said “I’m not even thinking about thinking about raising rates giving banks a presumed get out of jail free card for taking on risk).
OR they believed if interest rates increased, it would be “in their favor” ie, on the long end.
The short end has dwarfed the long end as to the velocity of the rise in rates.
But Yellen, who famously said, “We’ll never have another financial crisis in our lifetime” is “monitoring the situation.”
It’s been a good week for Hit and Run:
Long miners with FNV, GDXJ and WPM.
Reloading TLT long into the hole on Tuesday morning.
Long IWM puts.
And long META.
To name a few of our positions on Wednesday.
It’s been a fractured market. Not the momentum monolith that had the Algomatics fingerprints all over it.
Former value leaders like CAT are waterfalling while former growth glamours like MDB are in an echo of the hyper growth/zero to low earnings bubble.
Some semis like AMD soared while others like ON flopped.
Despite a surging dollar, gold rallied sharply.
This fractured market reflects the dispersion on the tape but also indicates instability.
Instability breeds volatility. As Steve Eisman of The Big Short said yesterday, “if you don’t know what’s going on, don’t be a hero.”
There is a confluence of many known unknowns for most market participants: however we believe the news breaks with the cycles, not the other way around. As such we rely on Time and Price to determine the trend -- and tell us where to look for turning points.
For example, the SPX low for the bear is 3491 (348).
On the Square of 9 Wheel 349 aligns with January 4, the all-time high (in 2022).
This tells us that when the SPX got to 3491 and left a large range reversal not to give it short shrift (no pun intended).
Likewise April 4 is square 349. So early April should be pivotal… especially as it ties closely to the end of the Gann Panic Window in late March.
January 4 red
349 (3490) purple
April 4 blue
The SPX all-time high was 4818 (481/482).
481/282 vectors/vibrates May 17 which is important because that is the start of the NYSE.
May 17 purple
Consider that the high prior to the Lehman Crash in 2008 was May 17th.
Using the number grid on the Square of 9 as years it is remarkable the 481/482 vectors/vibrates off 1929.
The high in 1929 lasted for 25 years.
How long will the January 4, 2022 SPX high last?
Is this happenstance?
Allow me to show one more historic example.
The number for the year 1987 is square October 28 the day of big crash in 1929.
October 28 (1929 crash) blue
Look at it this way, if you were trading in 1987 and saw the similarities with the pattern in 1929 going into early October 1987 you could have looked at your Sq of 9 Wheel and anchoring 1987 to the “zero point”, you would see that it pointed to October 28th.
Therefore you could have anticipated that a crash was likely in October 1987.
In sum, we are in the eye of the hurricane. It is very reminiscent of 2008 when there were stunning 1 to 2 day reversals from September through the low in early March 2009.
Interestingly the most dramatic upside reversal played out in a two day rally just before the heart of the 2008 crash …in October, of course.
Notice the 2008 October crash followed what looks like an inverse Cup & Handle.
Currently it looks like the SPX may be working on the Handle of an inverse Cup & Handle
Conclusion. Wednesday afternoon’s late rally saw the SPX trim its loss to 27 points after being down 80 points intraday.
When this rally runs its course and completes what looks like the Handle of an inverse Cup & Handle, a very strong down wave will follow. The Handle could already be complete.
Sooner or later a bond that was worth $100 is only going to be worth $80.
This is the problem that even buying time won’t “paper” over.
What happens during the recession when credit risk meets the current interest rate risk?
In 2008, we had credit risk.
Now we have interest rate risk with credit risk on deck.
Then the second mouse will get the cheese as the chickens come home to get roasted.