By: Jeff Cooper

Hit and Run Morning Stock Report: September 12th, 2022

Risk is What You Don’t See Coming

We noted last week that mid-September marks a natural 90 day/degree turning point from mid-June low of the year (so far).

At the same time, if the DJIA tops at 33,026, the rally from September 6th would have retraced a Fibonacci 61.8% of the 3,233 point decline from the August 16th top.

A 50% retrace of the SPX from the August high to the June low is 4107, coincident with the declining 20 day moving average.

This ties closely to 360 degrees up from the September low at 4139.

On Friday, the important SPX 3 Day Chart turned up when it traced out 3 consecutive higher daily highs.

If the trend is strongly down immediately, this should define a high soon in terms of time and price.

Otherwise the market may extend somewhat.

We can look back to the pattern from  July 19th when the SPX turned its 3 Day Chart up and poked above its 50 day line.

The index pushed higher then carved out a successful backtest of its 50 day ma, before ripping higher to its 200 day ma on August 16th.

Let’s see if we get 2 consecutive lower daily lows from here which would satisfy my daily Plus One/Minus Two buy setup.

If so, the subsequent behavior will be telling as to the short-term.

The moral of the story is that targets are nice, but trend trumps targets.

The 3 Day and 3 Week Charts do a good job of defining trend along with moving averages…as does the Square of 9 “targets”/squares, but time is more important than price as WD Gann wrote.

It is always the behavior at a price square that we want to observe to see if it indicates higher (or lower) whereas cycles, seasonality, and degrees of time (time squares) will carry the weight.

So here are the 3 big time pivots:

Mid-September is 90 days/degrees from mid-June low.

Late September is 180 days/degrees from the important late March peak.

October 4th is 270 days/degrees from the SPX January 4, 2022 high of the year.

Notice the convergence in late September/early October.

It looks like we could get a directional move from mid-September to late September.

The rally, the last 3 days, has been successful in working off a deep oversold condition in the market.

We wrote about the minus 100 NYMO recently--

Now it has bounced in tandem with a 5% rise in the SPX.

We saw a similar movie play out in early March 2020 under more severe selling pressure during the beginning of the Covid pandemic.

Markets were in a well-established downtrend.

NYMO reached a deep oversold reading of -135.

NYMO bounced in 3 days to -39 in tandem with the SPX bouncing 10%

The setup is roughly the same.

Long time readers will recall that we identified the low day, March 23rd, in 2020 at that time,  writing that, “there is a strong likelihood for the SPX to advance to 4000 in the coming year.

The difference between then and now is that we hadn’t seen a market blow-off yet in 2020.

In early March 2020, during the Covid outbreak, NYMO plunged to -140.

Here in Sept 2022 it plunged to -101.

In March 2020 the 3 day bounce was around 10%.

Here in September 2022, it has been about 5%.

When we combine the NYMO behavior with our cycle work, and the negative seasonality, and the Gann Time Factor using the big picture cycles, along with the structure of the SPX which suggests we are on the precipice of a dramatic 3rd of a 3rd wave decline, caution is warranted.

There is no guarantee in the market-- this is a game of probabilities

But, the aforesaid suggests there is likely some kind of news event which will startle markets.

Institutions have placed $8.1 billion in puts this month.

Probably nothing.

In sum, bear markets only end after the Fed have cut rates because every rate cycle leads to financial crisis.

The Fed will continue to raise rates to repair their credibility, until something breaks.

This is why defense is the playbook.

What kind of event is out there that correlates to the idea of a powerful wave 3 of 3 decline and $8 billion in institutional puts (that’s not just hedging)?

I don’t know, but the news breaks with the cycles, not the other way around.

Just to recap here are some of the big picture charts we showed last month.

The big picture weekly SPX below shows a series of Ghost Lines clustering at the 3000 region

These Ghost Lines are carved in stone, but checkout how they defined the mid-August peak in a chart from the August 22 morning report.