By: Jeff Cooper
Hit and Run Morning Stock Report: 08/25/2022
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“Bear markets have three stages---sharp down, reflexive rebound, and a drawn-out fundamental downtrend.” Bob Farrell
Late Tuesday we tweeted on the Hit and Run Private Twitter Feed that a rally attempt was on deck for Wednesday.
There were several indications to suggest a rally:
1) The SPX 3 Day Chart turned down on Tuesday for the first time since mid-July.
2) The SPX tested a rising trend line from the mid-June low of the year.
3) There was a positive divergence going into Tuesday’s bell with breadth positive and the SPX red.
4) Phil D Gap from August 10th.
Despite a stutter-step in the early going on Wednesday, the index stabilized and rallied--half-heartedly-- the SPX was not able to turn its Daily Swing Chart up on trade above Tuesday’s high.
The futures did so overnight, attacking the 4177 June high and recent breakdown pivot.
The cash will turn up the dailies today.
Be that as it may, this pullback off the August 16 high sliced through the 20-day moving average…which is not the normal expectation coming off a Runaway Move.
This means a solid short setup will be on the table on a 1 to 2-day rally that backtests the 20-day ma now looming overhead.
This week and early next is a pivotal juncture for the market.
August 25th was the pre-crash high in 1987.
August 24th was the pivot high, the last high prior to 9/11 in 2001.
W D Gann put a lot of significance on anniversary dates because of the Solar Return.
Well, 7 years after late August 1987 was August 1994.
An important high was struck on August 31st.
7 years later was 2001 when a pivot high was struck on Aug 24 prior to 9/11. The market was water-falling prior to 9/11.
The market was “heavy” before the Twin Towers.
7 years later was August 2008 when the last pivot high was struck on 8/28 prior to the Lehman Crash in September.
7 years later was August 2015 and the SPX struck a pivot high on August 17th prior to crashing.
Markets that run up in July and August have a proclivity to come unwound in September.
One of the most famous examples of course is the rum up into September 3rd, 1929.
Most market participants think the market was strong throughout 1929.
In fact, the vast majority of stocks made high in 1928…just as most stocks made high on this cycle in 2021.
My advice…panic now and avoid the rush.
In sum, the market rose modestly on Wednesday but volume was weak and breadth was nothing to write home about.
Markets are heavy and if the secondary rally ended on August 16th the next leg down will be dramatic.
Surprises happen in the direction of the primary trend and that trend is down.
In that context, QQQ has a Time/Price square-out in the 301 region over the next week.
If the market rolls over 301 should act as a magnet for the Q’s