By: Jeff Cooper
Hit and Run Morning Stock Report: March 22, 2023
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Powell, Pivot or Pirouette?
Pirouette is defined as an act of spinning on one foot.
According to reports, this year will be critical because about $270 billion in commercial mortgages held by banks are set to expire -- the highest figure on record. Most of these loans are held by banks with less than $250 billion in assets.
What could possibly go wrong?
But as we said on the H&R Private Twitter Feed on Tuesday I don’t too often talk funnymentals. I learned decades ago that markets are driven by psychology and momentum (despite having matriculated at the famous Drexel Burnham office in Beverly Hills), not interest rates.
You’ve seen markets ramp on rising rates and falling rates. They are a good excuse, naturally.
On Wall Street and Main Street, perception really is reality. Still I have to mention that the conventional wisdom amongst bulls is that the banking crisis is bullish because it is destroying the economy, leading to a deep recession.
Why is this bullish?
Because it means the rate hikes will stop.
However, as you know, we listen to the market itself and the technical position of this market does not see the destruction of the economy as a bullish event.
The old saw is higher lows and higher highs is bullish.
On the surface the SPX below is set for either a higher swing high or lower swing low.
Notice that the Maginot Line is 3800.
We must be mindful that MACD or any oscillator signals in a bear market are not as descriptive or predictive as those in a bull market.
While a bullish argument can be made for the above chart, the structure is indicative of a Wave 3 decline in progress.
While cyclically, we are in a time where cycles exert their downside influence -- if they are going to -- over the next few weeks.
We have the Gann Panic Zone culminating over the next week.
At the same time April corresponds to the April pivot high in 1930 following The Crash of ’29.
It was an infamous SEVEN months from the September 1929 peak.
April 2023 is also opposite the so-far bear market low of 3490 on October 12, 2022.
October 13 squares 349 (3490) on the Square of 9 Wheel…just as April 11 squares 349.
Is it possible early April is a high rather than a low.
Of course it’s possible. Anything is possible in markets.
But the likelihood is mid-April sees a dramatic fall.
One cannot rule out both occurring -- a mid-April peak and a subsequent plug-pull.
The 90 year or so cycle (1930) suggests April is a Crisis Cycle.
April 1930 is 93 years ago.
On the Square of 9 Time/Price Calculator, 93 squares April 19.
Long time readers of Hit and Run know that April 19th is a date of infamy.
If you expand the date April 19th a few days on either side it includes”
The Inauguration of George Washington, April 30, 1789
Start of Civil War, April 12, 1861
Assassination of Lincoln, April 14, 1895
FDR announces U.S. will leave gold standard, April 19, 1933 (exact 90 year cycle)
Start of Spanish-American War April 26, 1898
Bay of Pigs invasion failure April 17-19. 1961
End of Vietnam War April 30, 1975
The Titanic sunk on April 15, 1912
The Great San Francisco Earthquake April 18, 1906
The birth of Rome is dated as April 21, 753 B.C.
Why is this time frame unique? And what does it have to do with markets?
It is unique because the first month of the natural year starting on the Spring Equinox ends on April 19/20.
It represents the Opening Range of the year whether it has to do with “events” or with markets.
Notice how many of the above events have to do with war cycles.
There are many indications of war currently that could “break out.”
So from a markets viewpoint, the trading action in this first 30 days of the year should be bracketed to gauge a breakout.
Often times whichever way markets break after April 30 determine what to expect for the rest of the year.
This is similar to my use of an ORB or Opening Range Breakout revolving around the first 30 minutes of the session versus the first 30 days of the natural year.
This is why WD Gann called March 21 his Zero Point.
Gann said if you can find the Zero Point, you can measure anything.
So it is quite interesting that the SPX is at a 50% retrace of the February to March lows coincident with a backtest of the widely watched 50 day moving average.
A higher high above Tuesday’s high will put the SPX in the Minus One/Plus Two sell position at the region of the 50 day moving average.
An hourly SPX shows two trend channels, blue and purple.
The SPX shows a possible 3 drives to a high
The purple trend channel suggests a breakout opens the door for potential to a cluster of 3 trend lines in 4060 region.
This is just below the 4070 early March high.
The bottom line.
Earlier this month we noted the NYMO has closed below the key -100 level.
Each time the McClellan Oscillator has fallen below -100 within a Primary Bear Market since 1925 the SPX has fallen to a new low below where it was on the day of that sub -100 reading over the next 2 to 8 weeks.
Typically the low occurred within 10-40 calendar days later.
The average decline in the SPX from the day it closed below -100 and then turned up (which it did last week) was about -15%. But the range of the further decline was -7% to -37%.
To date the –108 reading which occurred at 3855 has been followed thus far by a six trading session rally.
This overall pattern has been highly consistent for the past 100 years.
Using these historical data the AVERAGE expectation would put the SPX low at about -15% from the 3855 level to around 3300 plus or minus around 200 SPX points.
An average for this time-wise would be around April 10, 2023, plus or minus a week or two.
This is fascinating given the above dates of April 11 to April 19.
It must be said that should the market plunge into April that does not necessarily imply the end of the bear market.
The main takeaway from this historic setup is:
Once -100 NYMO is breached in a primary bear market, a further low is coming in the weeks ahead.
No. Nothing is 100% of course, but this relationship has proven itself dozens of times over the last 100 years.
We have are parameters whatever should follow Powell, Pivot or Pirouette.
History tells us we will see at least 10% below the 3850. It could be 20%.
History tells us there is a strong likelihood this should occur in April.