By: Jeff Cooper

Hit and Run Trading Morning Report - July 26, 2023

Pay Me Now Or Pay Me Later

The Investors Intelligence bullish percentage is the highest of the entire bear market at 75.1%.

The American Association of Individual Investors bullish percentage is the most extreme of the entire bear market at 59.5%.

The CNN Fear and Greed Index is the highest of the bear market at 83.

The National Association of Active Investment Managers (NAAIM) Exposure Index shows the average stocks exposure of active investment managers to equities  is at 99.5%, the highest since the first week of November 2021.

That is when the RUT 2000 peaked and two weeks prior to the peak in the NAZ.

As yesterday’s report was titled, All In.

Overconfidence breeds leverage.

Leverage leads to crashes.

Checking margin debt relative to cash we are at extreme risk levels.

In markets man is a sentimentalist, not a scientist.

In the heart of the current speculative frenzy, there is market order.

The rally has lasted precisely 195 trading days to Tuesday’s high which matches the number of trading days of the decline from January 4th, 2022 to October 13th, 2022.

It would be compelling if the market had topped on Tuesday.

At the same time, August 2nd is 180 calendar days from the important February 2nd, 2023 peak.

The market has shrugged off rising rates, inflation, war, stretched valuations.

Is the Fed going to pour gasoline on the fire with dovish comments today.

Not likely.

Today they will raise interest rates to the highest level in 22 years.

Given the strong stock and real estate markets and rising wages, they are not likely finished after today.

In sum, the rally from March to July was perpetuated by the spigots being turned on due to the regional banking crisis.

But the real regional banking crisis is a credit event stemming from commercial real estate.

The second crisis mouse will get the cheese but this time the market is stretched and unhedged.

Yesterday, the SPX left a Soup Nazi sell signal.

It hit a new 20 day high but reversed back through the high of at least 4 sessions prior.

Follow thru is key but it has my attention this is a possible test failure of the prior swing high which occurred on a key anniversary date…the primary high of July 19, 2007.

Few thought a real estate crisis and a credit event was on deck then.

When the SPX declines through 4450 the bear will be growling.

4450 is the a Breakaway Gap from the June 16th/June 30th little double tops.

This would confirm a Gann M A Top.

The two peaks in the M being June 16th and 30th.

The ‘A’ being July 19/25th.

Opportunity exists when the crowd is convinced inexorably of the future.

And the crowd undeniably believes this is a new bull market.

Even Bloomberg stated so this week.

This is precisely the picture the perverse Mr. Market wants to paint at an Intermediate Trend degree corrective wave top.