By: Jeff Cooper
Hit and Run Trading Morning Report - August 18, 2023
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The News Breaks With The Cycles, Not The Other Way Around
“There are days it never rains but it pours.”
-Under Pressure, Freddie Mercury, David Bowie
The news breaks with the cycles, not the other way around.
Now we know one reason why the market’s been in a slide.
On Thursday, Evergrande, China’s second largest property developer filed for bankruptcy.
The property company’s debt load is a staggering $340 billion dollars.
If a butterfly’s wings flapping in China can cause a hurricane in the U.S., Evergrande is a Pterodactyl (a flying dinosaur).
The problem is that there is as potential impact on China’s financial system: If Evergrande defaults, banks and other lenders may be forced to lend less.
This could lead to a credit crunch, when companies struggle to borrow money at affordable rates.
The question is in this age of too big to fail is whether Evergrande is too big to bail (out).
While Beijing may step in, such a high profile bailout could be seen as a bad example and counter to the governments aim to rein in corporate debt.
A credit event for the world’s second largest economy is a global crisis because companies that can’t borrow have a difficult time growing and may be unable to continue operations.
This in turn may unnerve foreign investors who would see China as a less attractive place to invest.
There is a confluence of debt issues.
"On Friday August 5th, 2011 Fitch downgraded US debt. The SPX fell from 1200 to 1119 in two days, a 7% drop. A similar decline in August 2023 amounts to a drop to 4040 region. …This week (the start of August 2023) is 144 Fibonacci months from early August 2011.
In addition August 9th is 144 Fibonacci days/degrees from the important March 13th, 2023 low.”
We wrote the above in the August 2nd Hit and Run Report.
In the August 3rd report, we showed the SPY Ghost Line.
August’s 4th’s report stated that the current momentum break was the beginning of a powerful Wave 3 decline in a Primary Bear Market or the beginning of a C Wave decline.
In the latter the decline from January to October 2022 would be an A Wave down with a B Wave advance from October 2022 to July 2023.
It was never a new bull market
In the Monday August 7th report, Down Goes Frazier, we wrote that AAPL’s fall from grace may mark the star of Intermediate Wave 3 down showing the weekly chart below.
On Thursday’s Hit and Run Private Twitter Feed we wrote that 170 is 180 degrees down from AAPL’s
198 all-time high from July 19th and that the 170 strike could be seen as early as today’s Opex.
AAPL dropped out of a Bear Flag opening the door to the 170 strike
We showed a daily DJIA from 1929 showing as bounce from trend line support before the deluge.
The Q’s are to the market now what the DJIA was to the market in 1929.
A daily QQQ shows a close only trend line at the 355/356 region, just below Thursday’s close.
From the July 19, 388 QQQ high for the year, 90 degrees down is 368.
The Q’s close meaningfully below that on Thursday at 358 opening the door to the next decrement of 90 degrees down which is 350.
The billion dollar question (inflation) is do we get a backtest of the 50 day line first or do we get to 350 first.
In sum, will today’s Opex be a buy the news even now the Evergrand story is a fact?
The July high on the SPY is 459/460.
This price points to today, August 18th for a possible Time/Price square-out.
Thursday’s report offered that August 18th squares-out with 438 with downside follow thru opening the door to even lower prices.
With the SPY closing at 436, the overhead pivot is 438.
180 degrees down is 418, the Bull/Bear big picture pivot, the breakout point in May
The angle of attack to the downside is sharp: the SPY has seen only one close above a prior day’s high since the July top.
This A panic, but it is not THE panic.
THE panic will see a complete unwind of the blow-off with a decline to the point of origin---the March 380 low.
Interestingly a 360 degree decline off the 459/460 SPY high is 378.
Said another way, this downdraft is the result of a natural 360 degree advance in roughly 120 days/degrees.
Few understand the market is not random.