By: Jeff Cooper
Hit and Run Morning Stock Report: August 31, 2022
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The Most Important Rule
The NYMO , NY McClellan Oscillator, is deeply oversold.
See below panel.
You will see also the comparison with August 30, 2022 is very similar to the position of NYMO within the trend to
January 19th, 2022, the first dotted vertical red line.
Both are deeply oversold.
Yet notice the next 3 days after January 19th, 20th, and 21st were down hard.
Monday, the 24th, saw the SPX gap down sharply and continue lower before reversing sharply.
January 24th, of course, marked the first leg down in the bear market with a low of 4222.
Mr. Market has a memory like an elephant.
It knows well this 4222 region.
In early August the SPX gaped up reclaiming this 4222 level.
On August 22nd the SPX gaped down back below 4222.
This created a 7-8 day Island Top.
This pattern at the low of the first leg down underscores the idea that a secondary high was installed
On August 16th was confirmed by the Breakaway Gap to the downside on Aug 22 and validated by the subsequent downside follow through on breadth.
In sum, the most important lesson, which often takes traders years to assimilate, is that a deeply oversold reading in a bear market is not the same as a deeply oversold reading in a bull market.
It depends on the cycle.
I’m sure you’ve seen countless examples of statistics as to why the “bear market was over” during the July/August rally.
The vast majority of these examples were data mining prior bull cycles …not bear cycles.
The bottom line is the NYMO is diving toward new lows on the year.
While there is an expectation of a rally ATTEMPT…just as there was yesterday with an oversold reading…we told you Monday was likely a Paws Day-- a TNT Day.
In other words, Friday was a down Thrust, Monday was Noise setting up a continued down Thrust for Tuesday.
We got it.
My TNT pattern and Paws day put us in the right position NOT to believe Tuesday’s up open.
The same may be true today.
As the NYMO indicates we may get hard down days into the weekend until a rebound.
That said there is reason to think we could rally from here:
The SPX satisfied and closed over a 50% retrace of the June to August range.
The SPY satisfied the 395 Time/Price square-out.
The QQQ satisfied our 301-302 square-out.
In fact 180 degrees down from the 334 August peak is 298.
Tuesday’s low 298.44.
Let’s see how this technical tug of war plays out today.