By: Jeff Cooper

Hit and Run Morning Stock Report: 09/14/2022

The First Mouse Gets the Squeeze, the Second Mouse Gets the Cheese

“Monday was day 4 of the rebound. Where might we expect this rebound to end?

Last week we noted that 360 degrees up from the September low is 4140.

Monday the SPX pushed to 4119.

Remarkably it sits just below 4140 as we are in waiting mode for today’s CPI…

Indeed the SPY is at a Time/Price square-out on Monday’s close.

If one anchors the mid-June low of the year to the “zero point” on my Square of 9 Wheel, you see that it squares 412.

Monday the SPY struck a high of 411.73.”

W.D. Gann wrote that when Time and Price square-out, expect a change in trend.

The above is from Tuesday morning’s Hit and Run Report, The Setup.

Monday overnight and prior to the CPI the futures rallied,  fully testing the aforesaid 4140 region.

Then came the meltdown….the worse one-day drop since 2020.

There are THREE factors that point to Tuesday’s crash.

1)      The SPX was 360 degrees up from the September low

2)      The SPY showed a Time/Price square-out

3)      Most all rallies after severe downside momentum, such as we saw in early September, see no more than 1 to 4 days of rebound.

In sum, we got a sharp bounce off an undercut of the SPX June/July rising trend line.

The strength of the rally after the seemingly successful test of the trend line perpetuated a lot of FOMO.

There were calls for new ATHs permeating The Street.

We told members differently.

The first mouse…the first break of the June/July trend line got a squeeze; however, yesterday, the SPX caved through the most important trend line of the year---the June/July trend line, and the bears are on deck for the second mouse to get the cheese for a drop to new lows on the year.

The SPX snapped a 3-point trend line on Tuesday triggering a Rule of 4 sell signal.

These are powerful signals that typically lead to follow-through.

As well, this is consistent with the idea of a dramatic 3rd of a 3rd wave decline in the SPX with the peak in mid-August being the wave 2 secondary peak.

Caution is warranted.