By: Jeff Cooper
Hit and Run Trading Morning Report - September 11, 2023
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Epic Point Of Recognition
“Learning history is easy; learning its lessons seems almost impossibly difficult.”
“Excesses in one direction will lead to an opposite excess in the other direction.”
Following the Covid Crash low in late March 2020 through 2021 produced the most incredible decent into market madness of our lifetimes.
We had SPACS, MEME Stocks, NFT’s and Metaverse real estate.
That period’s raw speculation exceeded even that of the Roaring 20’s preceding the 1929 crash and the Great Depression.
As Bob Farrell’s quote above implies, the Bear Market will bottom only when we reach the opposite of the speculative madness of 2020-2021…a period of 18 months or 540 degrees in time.
July 2023 aligned perfectly with a Primary Wave 2 peak being 540 degrees/days from the January 2022 all-time SPX high.
Most recognized the bear market in the spring of 2022. In the spring of 2023 the vast majority of market participants had become convinced that the market had normalized and that the bull run since 2009 was still in play.
Primary Wave 3 down is the real danger. It is where the bulls and bears alike recognize the inflection point and that it is not a return to normal for the bull but a resumption of the bear.
It’s understandable why 2023 looked like a return to normal: XLK struck a new all-time high in mid-July 2023, right in the heart of our July turning point window.
Just to recap a few of the factors leading to that thesis:
94 years ago was 1929.
On the Sq of 9 Wheel 94 points to mid-July.
The DJIA high in 1929 was 386 which vectors/vibrates of July 19th, the NDX high in 2023.
The above weekly XLK shows a signal reversal bar at the mid-July all-time high.
The 3 Week Chart turned down immediately off that high.
The nominal new high in XLK is reminiscent of the nominal new high scored by the SPX in early October 2007. It was a short-lived new high above that year’s JULY high in the SPX.
it left an unequivocal weekly Soup Nazi sell signal.
Pulling back the lens to look at a monthly XLK shows that the XLK left a MONTHLY Soup Nazi sell signal in August.
This is because it cleared the prior high from December 2021 in July 2023 and then immediately jackknifed below the December 2021 peak.
Last week XLK turned its 3 Week Chart back up and the index rolled over in keeping with a bearish trend.
Bearishly last weeks roll-over came following 5 impulsive waves down and an A B C countertrend rally into the September 5th high.
As you recall, following the July peak we stated that an impulsive 5 wave decline sets up very bearish potential into September/October 2023 -- especially after a 3 wave countertrend rally.
We got that 3 wave counter trend rally into September 1st, dropping hard with Thursday’s Breakaway Gap.
In sum, XLK is the heart and soul of the big cap sedated, passive, mechanical mindset.
From my perch, Intermediate Wave 3 started down in July,
Minor wave 1 of 3 ended on August 18th followed by a corrective wave 2 rally into September 1st.
It looks like 3 of 3 down started on September 1st with a little sub-wave 2 on Friday…which may or may not extend.
The bottom line is that this wave structure coincides with the Gann Panic Window counting from the July high.
Some of the driving forces of this dramatic wave 3 decline which we’ll expand upon in tomorrow’s report are:
The unprecedented 18 month and counting inverted yield curve.
Rapid decrease in M2.
Escalating 30 year mortgage rates affecting housing affordability.
Surplus in commercial real estate due to decentralized companies.
The longest-ever LEI decline spanning 16 months and counting.
Manufacturing PMI has contracted for nine consecutive months, marking an historic downturn.
The shift of high-risk money to safer assets like bonds, gold and utilities.
We will use a lifetime of research and experience to guide you through what will be an epic decline over the coming year (s).
Interestingly, the recent pivot high was September 1st, which ties to the all-time high in 1929 which was followed by a 2 year + pernicious drop to a price low in 1932.
Although it was the price low of the Bear, the bear market would encompass another 10 to 17 years depending on how you count the structure.
September 1st also ties to the secondary top in 2000 which was followed by a horrendous 2 year + bear.
July was a picture perfect place for a secondary high to occur.
Late August/early September was a picture perfect place for a downdraft to accelerate.
Rembrandt, The Bear.