By: Jeff Cooper
Hit and Run Trading Morning Report - August 16, 2023
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“Snap back to reality, ope, there goes gravity.”
-Lose Yourself, Eminem
“It would not be surprising to see a rally attempt following an undercut of the 50 day moving average as early as today---following which my expectation is for a Flush Of the Fifty.”
I wrote the above in Monday morning’s Hit and Run Report.
I repeat it because we got as Flush of the Fifty on Tuesday.
Few understand what goes into making unhedged forecasts in this game.
Hit and Run puts itself on the line day after day.
Otherwise, why bother.
Since our projected July cycle high, synchronous with the July 27 large range Key Reversal Day,
The SPX has had only 1 c;pse above a prior days high--- on Monday 8/14.
Whereas the SPX issued a buy on every test of the 20 day ma (Holy Grail buy signal) since May 24th, Ever since the SPX breakage below its 20 day moving average on August 2nd. The 20 day has acted as staunch resistance.
Tuesday was a technical watershed day: the SPX closed below our key 4450 region mapped a month ago.
As well Tuesday saw a meaningful close below the 50 day line. Believe it or not, this is the first time the index has seen a close below the 50 day since late March.
In the process the SPX triggered a Jump The Creek sell signal.
It offset the open gap from July 12th.
The trend is your friend until it bends at the end.
It bent on July 27th’s Key Reversal Day.
Now it’s breaking and at a tipping point.
The 3 Week Chart turned down on Tuesday for the first time since the week of February 27.
The 3 Week Chart turns down with 3 consecutive weekly lower lows.
In a bull market a turn down in the 3 Week Chart is close to a buy point in time and price.
In a bear market when the 3 Week Chart turns up it defines a high soon in terms of time and price.
The normal expectation when the trend has been up and may be rolling over and the 3 Week Chart turns down is at least for a Reflex Rally.
Allow me to explain. When the 3 Week Chart turns down after a long period of being up and you do not get the Reflex Rally (at the very least), it is the Sign Of the Bear and opens the door to a spiral lower.
If we get downside follow thru following yesterday’s turn down of the SPX 3 Week Chart it opens the door to a drop to 4344.
90 degrees down from the 4607 SPX high is 4471.
Tuesday the SPX closed meaningfully below 4471 at 4437.
The next 90 degree decrement lower for 180 degrees down is 4339.
270 degrees down is 4208.
A daily SPX from the October 2022 low shows the significance of the 4200 region---the bottom of an important trend channel of Intermediate Corrective Wave 2.
I created the red trend channel by first connecting a close only trend line from the Oct 2022 closing low and the March 2023 closing low.
I then paralleled a line off the December 2022 high.
Notice that the top rail of the trend channel nails the July top.
Notably, the aforesaid 4339 region (180 degrees down) ties to a Ghost Line from the June Rule Of 4 Breakout (blue line).
From the early June breakout a SEVEN week blow-off played out. This is the Gann Death Zone or Panic Zone.
We cannot dismiss out of hand an August panic at a time when the vast majority of market participants believed it would be smooth sailing into the end of summer ala 1987, 2000 and 1929.
There is always a T-Rex in Mr. Market’s ointment.
360 degrees down from 4607 is 4079.
Breakage below the 4339 region opens the door to a drop to the bottom of the red channel around 4150 which if broken points to a full 360 degree decline to 4079.
The bottom of the red channel ties to ‘normal’ 10% decline.
Interestingly, a 50% retrace of the October to July advance is 4046.
Consequently, follow thru below the 50 day line and then 4339 implies the bottom of the trend channel will be tested.
If the channel fails it points to 4046 and below that gravity takes over and there is a strong likelihood that new lows below the October low are on the table
Interestingly a 50% retrace of the October to July advance is 4046.
“Ope, there goes gravity.”