By: Jeff Cooper
Hit and Run Trading Morning Report - August 8, 2023
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Bull’s Snatch Defeat From Jaws Of Monday’s Rally?
The VIX has broken out; volatility returned last week following August’s 1st SPX NR 7 Day.
VIX triggered a Rule Of 4 Breakout and backtested the breakout point.
Now it has traced out what looks like a Bottoming Cup and Handle.
The bearish potential is large. Be ready.
Especially if the Buy The Dippers were lured onto thin ice with Monday’s rally: fast moves come from false moves.
Then the Iceman Cometh.
Yesterday’s rally did nothing to change the bearish potential…the SPX merely backtested its overhead 20 day moving average.
The bulls would love to offset Friday’s outside down day break of the 20 day line but if we get consequential downside follow-through today, they will have snatched defeat out of the jaws of Monday’s rally.
The Runaway Move is broken.
The evidence is:
1) A Key Reversal Day on 7/27
2) A Breakaway Gap on 8/2 on the heels of the previous sessions NR 7 Day
3) 8/4’s Grail Fail/LROD (Large Range Outside Down Day) break below the 20 day moving average.
Initial NDX downside potential is the 50-day moving average and trend channel support near 15,000.
Momentum below that opens the door to a full-fledged rout to 13,300.
This is the prior Breakout Pivot from May.
Below our 4450 projection on the SPX opens the door to 4300-4330 region.
As tweeted yesterday and shown below, the Bull/Bear Pivot is 4200 ish.
My bet is upside follow-through in VIX and bearish potential in SPX will coincide with a drop below Friday’s low, opening the door to the first test of the 50 day moving average since May 4th or approximately 90 days/degrees ago.
Clearly the Fitch downgrade and AAPL’s earnings injected a tone of uncertainty into the tape… as did Friday’s helter skelter intraday reversals in the SPX and last weeks plum line drop in TLT (spike in 10 year yields).
Let’s take a look at TLT.
360 degrees down from the March 2020 peak of 179/180 is 130.
Another 360 degrees down is 109.
108 is opposite 179 and 130.
Notice the intersection of the top rail of the declining trend channel and the horizontal 109 level in early October.
A breakout over 109 suggests a surge higher. If this surge occurs in two months then it will also tie to escape velocity above the declining blue trend channel.
If an upside surge should occur this month it points to an extension to 113.
Above 113 opens the door to the 120 region.
Short-term a Jackknife above 94.50/95 triggers a Bear Trap,
Follow-through opens potential to 109.
So the big question is should we see a reversal does it indicate the start of The Credit Event.
The U.S. credit rating downgrade and the yield curve control by the Bank of Japan could each have triggered market disintermediation by themselves. The fact that they both occurred within one week of each other could indicate that conditions are changing more rapidly and broadly …and that’s not even taking into consideration the lag effect of interest rate hikes, rising bankruptcies and distress in CRM.
That the yen rose 1.5% against the dollar in just the past 2 days points to an building undercurrent of risk.