By: Jeff Cooper

Hit and Run Morning Stock Report: 09/27/2022

Turnaround Tuesday On A Test Of June Lows

On Monday the SPX finally struck a new closing low below the June closing low:

June closing low=3666.77

September 26 closing low- 3655.04

The market was trying to rally in the last hour but the last 10 minutes saw the SPX tank 19 points.

Did someone really have to wait until the last 10 minutes to sell or was it a setup…a hook for a rally today?

I suspect it put a hook in, possibly to drive call prices lower in order to buy them cheaper on the close-by-hitting stops.

We tweeted after the bell: “ If we don’t break tomorrow from the getgo, my expectation is a Turnaround Tuesday.

As I write on Monday evening the futes are up 23 points.

As well, an hourly SPX shows a little W Bottom.

Where could the rally carry?

Well, yesterday we flagged picture-perfect resistance at our 371 SPY square.

The cash was rejected from 3715.

You can’t make this stuff up.

Consequently clearing 3710 and holding opens the door higher.

Where to?

180 degrees up from Monday’s low is 3776. This is a direct hit of the declining 50-hour moving average.

360 degrees up off Monday’s low is 3900 which ties to the declining 20-day moving average and the high of

the  September 21 reversal bar.

If 3710 is cleared and held, I think we’re headed to one of those levels.

There is an analog by which a rally could last into October 5th/6th followed by a crash.

That time frame equates to October 15th, 1987 from that year's August 25th peak.

October 15th was a Thursday in 1987. The crash occurred two trading days later on Monday, Oct 19.

October 5th/6th this year also equates to October 23rd, 1929-- the first of two crashes occurred on October 24th…the second was on October 29th.

In sum, a rally phase off a deeply oversold NYMO and a test of the June lows for a quarter-end “save” if you can call it that… is set to play out.

The prevalent psychology that may be perpetuated on a rally that “sticks” here will be a successful test of the June lows.

If and when that fails, in the month of October, you can imagine a full-blown panic would erupt.

If the SPX strikes 3900 on a rally, a 10% drop could unfold to 3520…the big 50% retrace.

But first things first, the index must recapture and hold 3710 on a closing basis… then 3750…the two levels flagged on the Twitter feed yesterday.