By: Jeff Cooper
Hit and Run Morning Stock Report: March 30, 2023
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History Is History
On Thursday the SPX poked below an hourly trend line from March 13 but closed back above it.
The false break gave rise to Wednesday’s Gap & Go.
As you can see on the above hourly SPX Wednesday’s gap snapped a declining tops line from the March 6th high.
In so doing, the index is testing the March 22 high prior to the FOMC Reversal.
The dailies show a breakout of a nearly one month triangle.
However, before you think the coast is clear, we must be mindful of a Triangle Pendulum sell setup.
This occurs when price comes out of a triangle and then quickly (as within a few days) to the downside.
A yellow warning light is flashed when price goes back through the top of the triangle (currently around 3988).
A blaring red signal is alerted when price continues back below the bottom of the triangle (currently around 3988) triggering a Triangle Pendulum sell signal.
A daily SPX shows the triangle or pennant with a close over the 50 day ma on Wednesday with the breakdown pivot from early March at 4050ish -- the topping tail week of 3/6.
On Tuesday we tweeted the SPX could rally to 4040 region into quarter without changing the outlook for April showers.
Why do I think that a Triangle Pendulum sell signal will be triggered?
Recently we discussed that throughout the last 100 years, that in primary bear markets, the SPX decline in a given cycle produces a significantly negative McClellan oscillator reading and then SPX and MYMO both bounce from that negative benchmark level.
The benchmark level is the closing level for the SPX on the day that NYMO reaches its low for the cycle.
This is the trigger level.
That level is the March 13 low at 3808.86.
A close below that level is the trigger for a dramatic decline according to history.
The shortest time lags from establishing the Trigger Level to triggering the waterfall selloff through the low of that cycle within the larger Bear Market occurred in 1962. That lag from establishing to breaking the Trigger Level in 1962 was just 7 days.
Another 7 day lag occurred in April 2022.
The longest lag time over the last century I could find was in 1978 at 19 days from establishing the Trigger Level to commencing the final selloff for that phase of the bear.
Regardless of how many days lag from establishing to breaking through the Trigger Level, the outcome is always the same: climatic selling.
If this pattern repeats as it has done dozens of times over the last 100 years, then within the next 10 trading days or so the SPX would break below the Trigger Level of 3908.
Mr. Market never offers any guarantees with analogs, but history is history and analogs based on market momentum tend to produce a high success rate.