By: Jeff Cooper
Hit and Run Morning Stock Report: September 2nd, 2022
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In The Wheelhouse
The SPX stopped dead on at 3900, the Maginot Line, the trendline connecting the June/July lows shown several times in this space.
Breakage below 3900 puts the market in the Red Danger Zone.
The SPX topped on January 4, 2022, then crashed to the low on June 17th.
That was the first wave 3 down of a Supercycle degree bear market now underway that may be one degree larger than the top in 1929.
That is the thesis.
The rally from June 17th through August 16th was an intermediate degree wave 2 rally, a two-month retracement of the 2022 6 month crash.
The top on August 16th was precisely on a time and price zone shown here that was a cluster of Ghost Lines from prior swing highs/lows.
The next leg down of the bear market likely started from the August 16 top and the momentum/breadth of the decline is consistent with the idea of a powerful and dramatic wave 3 decline.
Be that as it may, the decline has been more or less orderly, but breakage, especially on a closing basis below Thursday’s low, should see panic and disorderly price action.
There is a strong likelihood we will see an astonishing crash in the September-October period.
If we use the August 16th date as an anchor on the Square of 9 Wheel, the last rally high should be no later than September 26th with a crash potentially in early to mid-October.
But we cannot bet the farm on that as the “wheels” could come off at any time.
The market doesn’t owe us a graceful exit.
Moreover, using August 16th, to define a count for Gann’s Panic Zone is using a secondary high, not the “high high”.
In other words, using the high-high in 1929 and 1987 “called” the crashes in 1929 and 1987 coming 49-56 days following all-time highs those years.
Obviously, August 16 is NOT an all-time high.
So theoretically a Gann Panic Zone from a secondary high could be astonishing.
In sum, the news breaks with the cycles, not the other way around.
If the above is correct about a major decline on deck (reread my report Motherlode On Deck) then it most likely will be coincident with some big and shocking news.
As for the short term, earlier this week we drew a comparison between January 19-20 and the low of the first leg down on January 24th.
The drop of the last two days, DESPITE the NYMO being deeply oversold, bears out that comparison.
And as offered, the lesson is that oversold in a bear is not oversold in a bull.
Remember indicators are descriptive, not predictive.
This is why I always key off Time and Price and Pattern.