By: Jeff Cooper
Hit and Run Morning Stock Report: July 11, 2023
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Two Weeks On The Side
“Excesses in one direction will lead to an opposite excess in the other direction.”
The SPX was marginally higher after a full test of its 20 day moving average on Monday.
But the real story was the speculative frenzy that was evident in names such as MDB, SYM, UPST, CVNA and HELE to mention a few.
For example, MDB gapped below its 20 day moving average taking it down 11 points from Friday’s close to settling UP 6 on the day.
An impressive 18 point swing.
It was the first test of the rising 20 day moving average since June 1st. The next day MDB exploded, gapping up over 80 points.
Stocks have a memory and this test of the 20 day ma was not lost in the shuffle. I don’t call it the Holy Grail for nothing.
In contrast, the Magnificent Seven behaved like Seven Deadly Sins to kick off the week.
Likewise, the SPX fully tested its rising 20 day moving average, breaking the steepest rising trend line (from the May 24th low in the process before reversing green to close near session highs.
The Bull continues to snub its nose at The Matador: rising yields and technically, a Bearish Island Reversal.
As they say, timing is everything.
So is the behavior of insiders: CEO’s have unloaded $9 billion is stock in the first half.
As to yields, on 6/21 TLT broke a declining trend line in early April at 108.50.
However, there was never any upside follow-through (lower yields).
Instead the false breakout perpetuated a nose dive (rising yields).
Interestingly, the Summer Solstice breakout defined the rally high on the SPX.
So let’s take a look at TLT since it virtually timed the June top in the SPX.
TLT struck a swing high of 109.68 on December 7th, 2022.
90 degrees down is 99/100.
TLT dropped to the 99 region in late December, in early March and late May.
TLT’s 4 day swoon has broken spread triple bottoms.
The market is fighting the prospect of increasingly higher yields.
The market is fighting the Fed.
At a time when the general’s valuations are stretched, yields are rising.
It is a Jaws Of Death.
But again, timing IS everything.
And we think this early to mid-July period is set to exert its downside influence.
W.D. Gann had an expression: “two weeks on the side”.In other words, two weeks of distribution (or accumulation in the case of bottoms) prior to a downdraft.
For example, as flagged in June, the market struck a high on July 13th, 1990 and carved out two weeks of backing and filling before collapsing starting in early August.
Last week was the third week from the mid-June weekly closing high.
In summation, the SPX has been dancing around the top rail of a weekly close-only channel showed yesterday.
The index shows an up inside pattern.
If it should rally above last weeks high but NOT set a new high it will produce a weekly Hidden Dragon sell setup into the heart of our Turning Point window…this week.
While the micro structure is not terribly clear, if we break yesterday’s low, it opens the door in a big way
To a test of major support at 4260-4240.
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