By: Jeff Cooper
Hit and Run Trading Morning Report - July 24, 2023
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The Most Important Pivot Of The Year
“There are places in this world that are neither here nor there, neither up nor down, neither real nor imaginary.” Thomas Moore
“There are places I’ll remember all my life though some have changed.” In My Life, Lennon & McCartney (LINK)
They say the trend is your friend.
But so are trend reversals…they help determine when to get off the trend of whatever time frame you are trading.
The myth of the Buy and Hold methodology largely owes its stature to the idea that the market can’t be timed, that trying to time the markets is a mug’s game.
Buy and Hold is fine if you are an endowment fund that goes on in perpetuity. But we are finite.
If we buy and hold at the top of a secular bull market at the wrong time, it’s disastrous.
Investors who believers in the late 1920’s waited 25 years for the market to get even.
If you bought and held in the late 1960’s you waited 12 years.
The NAZ dropped 77% from March, 2000 to October 2002.
But it took 15 years until June 2015 for the NAZ to get back to that level.
The celebrating was short-circuited by an 8 month downdraft.
It was really not until August 2016 that the NAZ cleared its high from March of 2000 on a sustained basis.
The bottom line is Wall Street is paved with clichés and bromides.
There are trends and there are trends but the tape is littered with places that are neither here nor there, neither up nor down---
They are the nether world of Mr. Volatility or Miss Trendlessness.
If you’ve ready my family’s story of how my dad retired at 40 and lost more than he had on margin in the crash in 1962 but came back to take 3 times out of the money than he lost, you know why I created the Hit and Run Methodology in the 1990’s.
It has stood the test of time in the years since.
The popular market bromide is that only price pays.
Market participants almost exclusively pray at the altar of price while time gets short-shrift.
But trends and their end, when they bend, does not hinge on price.
Trends are driven by time.
And time and history are not linear, they’re cyclical.
Financial markets are cyclical.
Within that cyclicality there are trends.
Trends within trends. Cycles within cycles. Wheels within Wheels.
Fundamentals and economics don’t identify trend reversals because markets are discounting mechanisms.
Market participants use a myriad of technical tools to help to identify primary and secondary trends and trend reversals.
However, most all these technical indicators are based on price and volume, not time. Hence they are more descriptive than predictive.
If time is curvilinear and not a straight line as Einstein stated and there is nothing new under the sun as Solomon said, then it follows that understanding the nature of Time Cycles and merging time and price is a key to successful speculation.
The best tool on the planet for integrating Time and Price is the Square of 9 Wheel.
The idea of the Square of 9 Wheel of Time and Price is based upon WD Gann’s concept that when Time and Price balance out or square out to expect a change in trend.
Gann referred to this as the Law of Vibration.
It’s origins go back to the 5th century BC and Pythagoras who examined natural frequencies of many ‘vessels’ and ‘strings’ and concluded that everything in nature is connected, that the movement of one thing generates harmonic vibrations to all other things.
W D Gann wrote, “Vibration is fundamental; nothing is exempt from this law; it is universal, therefore applicable to every class of phenomena on the globe. After careful study I have proven to my entire satisfaction, as well as demonstrated to others, that vibration explains every possible phase and condition of the market.”
Let’s take a look.
The October SPX 2007 high prior do a devastating bear market was 1576.
1576 squares the region of the October time of the high.
This is one of the factors leading me to forecast a major high at that time.
In early October 2002 one of the factors allowing us forecast the end of the bear market was a Time/Price square-out.
Early October squares-out or vibrates off 768.
The SPX bottomed at 768 on October 10th.
These square-outs don’t exist in isolation. The duration of the move and patterns of the highs and lows going into these square-outs are key.
For example the October 11 2007 high was a test of the July 2007 high.
As well, October 11 left a large range Key Reversal Day validating the idea of a vibration and trend reversal.
It was a test failure.
Likewise the low in October 2002 was a test of a key reversal in July 2002.
WD Gann wrote that all important highs and lows are square-outs.
Gann also wrote that all important highs and lows in markets are related harmonically.
In other words past price highs and anniversary dates of historic highs or lows may have an effect on current markets.
For example the 386 DJIA price high in 1929 squares October 19th, Black Monday in 1987.
More recently the 4818 (481) record SPX high is square November 22, the day of the NAZ record high in 2021.
Drilling down to the current picture we see that the October 13, 2022 SPX low of 3491 (349) is a Time/Price square out.
Importantly, 349 is 180 degrees straight across and opposite July 14th. As well July 14th is square October 13th…the low for the move.
Mid-July ties to the time frame of the pre-crash high in 1990 and the aforementioned primary high in July 2007.
The DJIA 386 high in 1929 vibrates off/ points to July 19th
So this mid-July time frame look pivotal as we have dual synchronicity on the table.
The leading NDX struck a closing weekly high for this move off the October 2022 low on the week ending July 14th, so far.
The NDX left a weekly signal bar reversal week---it made a new 52 week high and closed at/near the low of the week.
Do these time, price and pattern synchronicities guarantee a downside reversal is on the table?
No. The market can do anything. There are any number of possibilities.
It is our job to identify the most likely probabilities based on historic outcomes.
While Gann said that all important highs and lows are square outs, it must be said that not all square outs are important highs or lows.
While the market is setup to decline here, it is the structure of a decline that will be important…whether it is corrective in nature or impulsive.
If it is impulsive as offered in reports throughout July, it opens the door for a vicious C Wave sell-off.
In other words the decline in 2022 would be counted as an A Wave with the rally off the October lows a corrective B Wave.
Follow thru in the NDX below the outside up weeks low of 2 weeks ago at 14,924 opens the door lower.
That would trigger a weekly Reversal Of A Reversal sell signal or what I call a Keyser Soze.
Key support on the SPX is the 4440 region. So the index can drop 90 to 100 points and still keep the bulls in the coral.
4440-40 ties to the June double tops, an open gap from June 12th and the 20 day moving average---a Technical Trifecta.
In sum, as members of my Hit and Run know the market is at a major pivot which will determine how at least the next 6 months will play out.
The SPX broke out of a tops line for 2023 this week but reversed having struck a larger intersection of trend channels.
Breakage below the 2023 tops line around 4525 opens the door to 4400 which is the rising bottoms line from March.
Whether or not indices can push to another new high here first before we get the downside structure to gauge is not my concern at this time.