By: Jeff Cooper

Hit and Run Trading Morning Report - July 31, 2023

Time & Price Set Up A  Thelma & Louise Moment In Markets

I was expecting a top at the end of 2021. I wrote in October 2021, “The market will get hit hard in January kicking off an ugly bear market.”

We got it.

The extent of the runup since March has surprised me.

In the Spring  I said that if the SPX cleared 4187 it opened the door higher.

Honestly, I did not think we would get this high.

When we got past April the analogue from the rebound into April 1930 following the 1929 crash,

I thought May could be an important turning point because of cycles and important  anniversary dates..

Such as the 2008 retrace pre-crash high and the anniversary of the NYSE.

Then a slew of cycles and Time/Price square-outs and anniversary dates clustered in mid to late July.

Time is more important than price as WD Gann famously wrote and undeniably July is 540 days/degrees (18 months)

From the January 2022 record highs.

The market has been grinding since mid-July.

Valuations are stretched .

Rates are rising.

Oil is on a tear and will produce drive a hot CPI.

The market is shrugging everything off. Mr. Momentum is driving.

It seems a Thelma and Louse moment and the car over the cliff is the market.

Come hell or high water, the Fed will have its day.

Just like in 1929 when it warned all year and the market ignored.

The ‘rationale’ for Friday’s rally was data showed U.S. consumer sentiment rose and inflation eased.

1)      Rising sentiment in markets attends highs

2)      Inflation was thought to be easing in the mid-1970’s until it wasn’t.

3)      Market participants like to have their cake and eat it too: so spiking oil prices and consumer sentiment will translate into continued easing inflation?

The presumption is the market rallied on the back of growing optimism that the economy will avoid a recession and encourage the Fed to  end its cycle of interest rate increases.

Just 2 things:

1)      The economy has never avoided a recession from a Fed rate hike cycle

2)      The end of the rate hike cycle is chanted by bullish pundits and commentators  dancing through the tape but the fact is the end of the rate hike cycle dovetails with a decline in stocks.

For example, just after the March 2000 run for the roses, the Fed ended its rate hike cycle on May 16th, 2000.

The SPX left a Key Reversal Day on Thursday. I can’t remember seeing a Key Reversal Day ever being taken to the woodshed the next day with a near 1% rally.

That said Friday was an inside day.

However, clearing and sustaining over Thursday’s high will trigger a Keyser Soze continuation signal.

If that plays out it potentially opens the door to the idea expressed in this space in late May of a blow-off into late August.

This mirrors the late May lows to late August blow-off tops in each of the 3 years, 1987, 2000 and 1929.

At the same time the leading NDX remains well under its July high.

The market has been  grinding around this July inflection point for a few weeks now.

Last week we showed a weekly SPX with the index flirting with a downtrend channel (blue) and an uptrend channel (green) as probing the region of the Head and Shoulders topping pattern.

Currently, the SPX has escaped the channel. However, notice the Pinocchio below the channel at the October low.

Astute observes will note the Key Reversal Week in November that saw a one week follow thru followed by a last ditch run to new highs in January and a fresh Key Reversal Week.

The second Key Reversal Week got the cheese for the bear.

Is it possible we get a daily pattern that is a fractal of the weeklies at the all-time high?


That could give us a nominal new recovery high.

Since I’m comparing dailies to the weekly, if this proposed fractal follows suit, the high would be in approximately 7 days.

That said the NDX left a Gilligan signal reversal bar 8 trading days ago. So the pattern may be full.

Note the congestion around 15,400/15,500 that ties to Thursday’s low.
This could have triggered Friday’s Opex squeeze.

Trade below Thursday’s low that follows thru below 15,400 will trigger an Angular Rule Of 4 sell signal.

Breakage below the red channel opens the door to the bottom rail of the blue channel.

Once support is broken we need to observe if the breakage is impulsive (5 waves) or corrective (3 waves).

Even a corrective breakdown could be large as in heading down to 4200.

Long-time members will recall that back in the Spring I identified 4187 as a big inflection point as it is 540 degrees up from low.

Clearly once the SPX eclipsed 4187 authoritatively it was telegraphing higher.

Interestingly, this 4187 region ties to a 50% retrace of the advance off the March low.

If the SPX pulls back in a corrective fashion potentially to as low as 4200 ish and then rallies the indication may be for a run to 4800. From that point a pullback would likely play out to the current region (4500-4600) that would put in a Handle to a Cup and Handle pointing us up to 5500 SPX on a breakout of the presumed Cup and Handle.

However, the primary count suggests a pullback will be impulsive. Nevertheless we must remain open minded.

If the pullback is impulsive confirming the idea of late 2021 being a major bear market top, then an impulsive break of support points us to 2700 to 3000.

Below is a big picture daily SPX from the 2009 low.

This chart proves the geometry of the 4818 January 4, 2022 ATH.


First, 50% of the range from the 666 low to 4818 is 2076.

Notice the acceleration when the SPX broke out from 2076 in 2016.

After breaking out, it backtested the purple 2076 line before the accelerated momentum that defined 2017.

Now look at the horizontal line near 2900.

2900 is 50% of the range from 1000 to 4818.

Why 1000? 1000 is the first pullback low in 2010.

2900 also defines resistance throughout 2018.

When the SPX reclaimed 2900 in 2020 it ramped.

Markets tend to play out in three’s. Notice the 3 Drives To A Low into December 2018.

A 3rd drive to a low within the red declining channel points to 3100 to 2900.

Importantly, the top rail of the declining trend channel currently resides at the bear market low near 3500.

If the leg down into October 2022 is an A wave followed by the current B wave, then a subsequent C wave decline points us down to at least 3380 (a Measured Move of the A wave decline).