By: Jeff Cooper

Hit and Run Morning Stock Report: August 29th, 2022

The Mother Of Stock Market Crashes

“…We will FORCEFULLY fight inflation…” Powell puts the nail in the bull coffin at Jackson Hole as he injects a new word

One week ago on Monday, August 22, the title of the Hit and Run Morning Report was, “My Advice, Panic Now and Avoid the Rush.”

The rush started Friday.

In reality, Friday was just a continuation of the downdraft that started from the August 16th secondary peak.

Thursday’s rally was a false move that kissed Phil D Gap from the August 22 Breakaway Gap.

A litany of talking heads in the financial press exclaimed on Thursday’s rally, “that obviously a hawkish Powell at Jackson Hole was discounted, baked-in by the market.”

After 13 years of Fed Pivot, the Street just could not bring itself not to believe the Fed Pivot was DOA.

Many market participants were looking for a V bottom this year based on extrapolating the pattern from 2018 and 2020.

But that was when the Fed was a friend of the market.

So the likelihood was we would get an initial low followed by a secondary rally and then a “test” of the lows.

That’s the bull case-- a successful test.

The bulls will look at the decline from the secondary rally high (mid-August) as that decline leads to a test/undercut of the June low.

The bears will see it as the Abyss.

While I doubt that the SPX Abyss will get to the confluence of Ghost Lines show below this year…you never know

As you will recall we flagged the turn down in the SPX Yearly Swing Chart when it occurred in mid-June 2022.

This is when the SPX traded below the 2021 low- the low of the prior year.

This was the January 2021 low of 3662.71.

That low was exactly one year before the SPX ATH in early January 2022.

Note the 1-year cycle.

The normal expectation is for a low when the big Wheel of Time, the Yearly, turns down.

Notice also that the turn down in the yearlies coincided with a turndown in the 3 Month Swing Chart with the SPX carving out

3 consecutive monthly lower lows in June, 2022.

We got a big rally from mid-June to mid-July when these two factors dovetailed.

Believe it or not, the last time prior to June when the 3 Month Chart turned down was February 2016.

The last time the Yearly Swing Chart turned down was in March 2020 when the SPX traded below the 2019 low of 2443.96.

Notice the similarities are that a rally started soon in terms of both time and price from each of the yearly turndowns-- in 2020 and in 2022.

Following the turn down of the yearlies in 2020, the SPX marched higher immediately turning its 3 Month Chart back up in July.

There was no turn down of the monthlies after the March 2020 low until September.

There is a conspicuous difference in the pattern of the Monthly Swing Chart here in 2022.

It turned up in August with a one-month turn-up and is getting hit hard going into month-end.

I doubt the monthlies will turn back down here in August, as that would take trade below the July low of 3721.56.

But…the monthlies may turn down in September on trade below whatever the August low is.

Right now markets are making new August lows.

So the behavior on the first turndown of the monthlies will be very important to observe.

Downside follow-through will confirm that August 16 was a secondary high.

Moreover, remember above we noted that the normal expectation is for a rally when the Yearly Swing Chart turns down-- be it a bull or a bear.

In a bull market, the rally off the yearly turndown perpetuates new all-time highs all 2020.

In a bear market, you get a reflex rally which is what the rally into mid-August shapes up like…and then new lows.

In other words, the Street will be loaded for bull on a test of the 3636 June lows, but trade below this year's turn down of the Yearly Swing Chart at 3662.71 will issue a Time Turn Trend sell signal…what long-time readers will remember as a Get Out Of Dodge sell signal.

Psychologically, you can imagine the fear that will grip the tape if and when the June lows prove not to be The Low to those who have bought into that idea.

If the SPX takes out the 3662.71 yearly swing pivot and then continues lower through the 3 Month Chart low…the low of the year at 3636.94, it will add insult to injury to the Time Turn Trend sell-- it will reinforce it suggesting a free fall is on deck…if it’s not already in progress at that time.

When is that likely to occur?

If August 16 was as important as it appears to be, then the period from September 25th will be very important.

It could be the eye of the hurricane.

Of course panic could break out at anytime-- here if we’re truly in a third of a third to the downside.

Especially on trade below 4020.

Remember this is a key 1080 degrees or 2 cubes down from the 4118 all-time high.

A 50% retrace of the rally is 3981... which ties to the 50-day line.

One cube or 540 degrees down from high is 3939.

In sum, Friday the SPX closed below an important rising trend channel.

On the daily SPX below notice the 3650 region and the 2nd purple horizontal line.

As we flagged last Monday when the index snaps the prior early June low, its trouble.

Thursday’s rally was a ONE-DAY attempt to recapture those early June highs.

A Hook, Line & Sinker Sell signal was triggered on Friday when Thursday’s low was smashed…confirming the false “hook” up.

Fast moves come from false moves and Friday’s was a doozy.

This breakage on the weekly closing basis opened the door to the 50-day line at 3998.

At the same time, the SPY has a Time/Price square-out today at 395.

This ties to a QQQ square-out flagged last week at 302 today.

Note the confluence of trend lines at 302 QQQ.

So we may get an undercut of the 50-day moving average before a rally attempt.

Alternatively, if these aforesaid levels snap and the market cannot get traction and mount a rebound, then a genuine  Friday/Monday Free Fall scenario ala August 2014 and October 1987 --as warned last week is in play.

To recap, last week we warned that the pre-crash pivot rally high in 2015 was August 17th.

We just made high exactly 7 years from there.

As W D Gann wrote, “Seven is the fatal number.”

As well August is the 7th month from the January all-time high.

Caution is warranted…especially if 302 QQQ or 4020 SPX and the 3950 (395 SPY) fails to act as support.

How low is low?