By: Jeff Cooper
Hit and Run Morning Stock Report: July 17, 2023
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Echo Blow Off Throw-Over
My dad started a private hedge fund back in the Go-Go Sixties.
He was a great tape reader with innate market sense.
To a large degree tape reading, has become a lost art courtesy of the Algomatics and decimalization
Which was only initiated to enable the Algo’s and High Frequency Trading---not to reduce retail trader’s commissions.
The analogy I like to use to describe tape reading throughout the time I worked with my dad in the 80’s and 90’s was that it was like watching an eagle in flight.
Today with decimalization and digitalization of the tape, it’s like trying to watch the wings of a humming bird. You can’t.
You can interpret the trend of an eagle through their wings.
There is no differentiation in the wings of a humming bird: it’s just a blur.
So you have to have other tactics and strategies. This is not your mother’s market. Or your father’s.
That’s why I developed the Hit and Run Trading Methodology.
Hit and Run…Trim and Trail.
We grab a profit as a stock follows through and trail a protective stop.
The Hit and Run Methodology revolves around pattern analysis.
Why do patterns work in that crowd behavior we call the market?
1) Humans can’t help but look for patterns and find structure in the information coming their way.
2) The cortex, the outermost layer of the brain, is found only in mammals and is responsible for the human ability to recognize patterns.
3) Although computer algorithms can spot patterns, an algorithm has not yet been developed that outperforms the human mind.
But the advent of AI puts that potential on the table and who knows what the next evolution of The Tape will look like.
Why do humans look for answers in patterns be they technical or fundamental?
“First principle: any explanation is better than none. Because it is fundamentally just our desire to be rid of an unpleasant uncertainty, we are not very particular about how we get rid of it: the first interpretation that explains the unknown in familiar terms feels so good that one accepts it as true.”
We’ve all heard the bromide, the market hates uncertainty.
Nature abhors a vacuum. So the desire to explain the market created an industry called technical analysis.
There is no lack of systems and indicators but all indicators are of second-degree magnitude: they are derived from Time and Price. My strategies ARE Time and Price.
We’ve highlighted a myriad of time/price synchronicities pointing to a turning point including a slew of anniversary dates in July of major highs and lows.
Let’s pull back the lens to look at the really big picture of the SPX from the 1980 low.
The decennial pattern is evident. The initial bottom prior to the 1982 impulse was in 1980.
Ten years after is 2000, a major high.
Roughly 10 years later is 2009 a bottom.
Ten years on is roughly the November/December 2021 highs.
Is the current decade going to be a trading range to down?
On the above monthly SPX I can’t count the 2009 to 2018 advance any way other than a THIRD wave.
The volatility that erupted in January 2018 and ended with the March 2020 crash low is consistent with a wave 4 decline.
The advance into January 2022 looks like a 5th wave blow-off, Throw-Over.
The SPX broke below an important Ghost Line and has backtested/knifed through it here into a cluster of time and price vibrations.
Indeed, It has overthrown the Ghost Line in what feels like an Echo Blow Off..
Mr. Market has a memory. It knows this line. The mind of the market is math and the behavior at this Ghost Line proves the geometry.
If the wave count and the July anniversary dates and time/price square-outs exert their influence the downside door is open.
SPX breakage below last weeks breakout above a trend-line from December indicates a Trap Door on deck.
Downside continuation offsetting last Wednesday’s open gap triggers a Jump The Creek sell signal at 4440 region.
A short-term rising trend line comes in at 4460 region.
So we have a potential Technical Trifecta blaring sell siren below an open gap, a tops trendline breakout and a rising trend line
The SPY satisfied a square-out at 448/449 into our turning point time-frame leaving a Gilligan’s Island sell signal.
This is a gap up to a new 60 day high with a close at/near session lows.
448/449 squares the 349 October 13th low.
349 is straight across and opposition July 14th.
Not all square-outs are important turning points, but all major turns are square-outs.
Caution is warranted