By: Jeff Cooper
Hit and Run Trading Morning Report - September 22, 2023
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Intense Downside Follow-Through
1) The SPX violated its March/August trend line with authority on Wednesday, closing on session lows. This is what we’ve been referring to as the Maginot Line around 4430.
2) Wednesday’s large range outside down day thru the key 4430 line perpetuated follow thru on Thursday with a Breakaway Gap.
3) Taken together the two led to selling pressure intensifying across the board.
The SPX was magnetized toward initial support near 4300 (red trend line) shown in yesterday’s report shown below.
The selling pressure picked up steam in the last two hours Thursday on the heels of a puny failed rally attempt.
The selling was not a surprise: 4430 is 360 degrees down from the July high. This 360 degree ‘support’ had been broken in August but the second mouse got the bear cheese.
It was the Mouse That Roared as 4430 buckled with a Breakaway Gap.
The angle of attack to the downside below 360 degrees down at 4430 the second time around opens the door to at least 540 degrees and the Big Kahuna at 4208.
None of this should be a surprise: The Key Reversal Day in July near the anniversary of prior significant highs foreshadowed the break of trend.
As did a series of lower highs.
These lower highs produce a declining trend channel.
The lower rail of this declining trend channel converges with the big October 2022/March 2023 bottoms line in October.
Over coming hours/days the bottom of the channel is around 4280.
In sum, while we got intense selling on Day 55, it was an orderly decline. There was no real panic or capitulation.
The question is whether we get a third big day of selling today ala the 3 Day Rule.
While the 55 day analogue is powerful, the market is not a Rolex.
As well today is Gann Day, the Autumnal Equinox. It’s a potential turning point day but again it’s always + or -.
Today squares 431 or 4310. So we must be mindful of a lower low that sees a reversal.
The Algomatics may trump the tape for a day with Opex Pinball.
That said, if 4300 breaks, full-fledged panic may break-out.
Nothing to really add. As long as resistance holds which in the big picture is 4430 I am looking lower.
Shorter-term resistance is the 4351 region.
Let’s take a look at TLT.
Yesterday, I tweeted that I think we are within days of a high in yields.
My expectation is that it will lead to a big rally in TLT, but not the start of a long-term change in trend.
Yesterday’s gap looks like a mirror image foldback of the early March 2020 spike.
We could get one or two more days of a spike down toward 89, a target I mentioned this summer.
89 is 720 degrees down from the 180 March 9th high.
Notice that TLT dropped from 180 to 140 SEVEN days.
I’m not suggesting we see a TLT rally that large that quickly; however, we could rally to 99 which if cleared opens the door to 109.