By: Jeff Cooper

Hit and Run Trading Morning Report - August 17, 2023

Wag The Dog Day Afternoon

“Roll up, Roll up”
-The Beatles, Magical Mystery Tour

We have been expecting a top and a pullback starting in mid-to-late July.

It went higher than I expected, but as we know, time is more important than price

For now it looks like an impulsive move lower on the hourlies that points to a few levels going into Friday’s expiration.

Let’s drill down.

Yesterday we noted that 180 degrees down from the July high is 4339 or 434 SPY.

This ties to the 435 SPY strike

The high was July 27th. On the Sq of 9 Wheel, July 27th is straight across and opposite 425.

That’s a flash crash, but it is within the realm of possibility given the “Fibonacci Air Pocket” we flagged for August at the beginning of the month.

Remember 144 Fibonacci months ago was August 2011 and a waterfall decline.

A weekly SPY shows the 20 week moving average resides at 430.

Downside continuation following this weeks turn down of the 3 Week Chart and the blue bottoms line suggests there is a strong likelihood of 430 or an undercut of that region.

The red Ghost Line  shows the potential trajectory to 360-355.

The magenta ellipses represent turns in the 3 Week Chart.

Notice the last turndown in the 3 Week Chart was roughly 180 degrees ago in February.

I connected the green rising trend line from the Oct 2022 low and the December 2022 low, the first higher low.

Notice how the SPY walked up that trendline but never scrored a close above this trend line---until the high week.

July 27 is square 445 and we are well below that having closed at 439.64, so the door is theoretically open to 425 if the wheels come off.

After all Goldman is blaming the current downdraft ON ODTE players.

Funny how they don’t criticize the one day option players on the way up.

But the Magical Mystery Option Tour has a virtuous vibe and a hangover side:

The options tail wags the market dog so never underestimate how big the bite could be.

Opex is August 18th which squares 438. That’s just below Wednesday’s close so more downside follow especially below this region and  the aforesaid 435 zone (180 degrees down) could see accelerated momentum.

Many technicians were expecting a continued grind higher and smooth sailing through the summer.

As we commented recently extrapolating is Wall Streets favorite past time---they’re always higher to buy and lower to sell. Right?

Players were looking at the blow-offs from 2000, 1987 and 1929 to assure a drive higher into late August.

But Hit and Run warned that the mid-July anniversary of the 1990 top and the mid-July vibration off 94 with 94 years being 1929 could see a rug pull.

As well the July 19th anniversary of the 2007 high had us on our toes with the NDX, the leader, topping on July 19, 2023.

The NDX Breakaway Gap to the downside on July 20th was an unequivocal technical dog whistle----when the subsequent rally attempt could not score a new high and instead the NDX turned down.

A daily NDX from the late December/early January low shows the potential risk.

1)Note how the upper rail of the trend channel is a picture perfect hit of the top.

2) note how the NDX is below the red mid-channel line

3) and the purple bottom line

Speaking of Flash Crashes, yesterday we noted that we are 6 squared years or 36 years from the infamous 1987 crash.

6 is a cube so a possible crash gets my attention.

We’ve seen a string of historic down days and are oversold but crashes come from a failure to bounce from an oversold condition.

Checking the Square of 9 Wheel shows that 36 is square August 18th, Friday’s Opex.

You can’t make this stuff up.

Shock Waves in the markets create vibrations that permeate through market cycles.

Considering how 94 years ago and 1929 point to mid-July, it warrants taking into consideration that

The year 1987 on the Wheel ( using the number grid as years versus price) is opposition late July when our recent high was struck.

1987 also squares October 29…the crash day in 1929.

Allow me to explain the significance.

Suppose you were trading in 1987 and recognized the similarity of the 1929 and 1987 patterns weeks before the ’87 crash…as Paul Tudor Jones did.

If you owned a Sq of 9 Wheel at that time…and PTJ may…and anchored “0” to the year 1987 and saw that it squared October 29th you may have surmised that there was a strong vibration pointing

To a crash in October 1987.

How much is that worth? A billion to PTJ.

October 19 and 29 are on the radar in 2023: they are respectively 90 degrees from the NDX July 19, 2023 high and the SPX July 27, 2023 high.

It looks like October is going to loom large in infamous legend here in 2023.