By: Jeff Cooper
Hit and Run Trading Morning Report - September 27, 2023
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Slowly Then All At once
A monthly U.S. Ten Year note (TNX) shows the Selling Climax in March 2020.
From my perch it the runup from May looks like a mirror image fold-back… a Buying Climax (in yields).
Notice the breakout in yields in July as the market was topping.
It was the straw that broke the bull’s back.
My count on TNX from the 2020 low suggests that the October 2022 peak in yields was a wave 5 high.
I’m calling the subsequent drop into April 2023 an A wave decline with the current drive a B wave.
A C wave decline in yields should be on deck.
Another move that knifes back below the 4.33 Oct 2022 low and sustains below it…and especially a reversal back through 4.07 close on the month of Oct 2022 (which incidentally ties to the August 2023 close) should seal the deal for a pullback in yields (a rally in TLT).
My expectation is a decline in yields while it may be sharp, as offered on Hit and Run twitter feed, will be temporary. In other words, not the beginning of a new bull bond market.
Succinctly, the 3 ½ year 5 wave advance may be part of a larger Wave 1 advance.
Taking the low yield of 0.39 in March 2020 and moving the decimal point to get 39 to work with the Square of 9 Wheel shows that 180 degrees up is 51/52 or 5.1% to 5.2%.
At the same time 5.2% yield (52) points to early October.
However, we could be at a high in yields right here at today squares. 45 (4.6%).
Yesterday’s high of 4.56 was the high for the move.
Heads up for a possible lower open today and a reversal.
While the strong rise in yields over the past three months has destabilized equites, at some point the tables turn and a flight to safety could turn into a meltup in bonds (a drop in yields).
Again…not a long term phenomena.
But it could perpetuate a swift drop in 10 year yields.
That’s a big deal. That’s a big trade if I’m correct.
A weekly TNX shows the Rule Of 4 Buy point at 3.85.
The aforesaid C wave could see TNX drop to as low as 3.30.
The SPX followed thru on the authoritative break below 4330 opening the door to the low 4200’s.
The DJIA knifed below its 200 day moving average.
That was the position of the DJIA the day before Black Monday in 1987.
On Black Monday the DJIA gapped down and continued to build like a snowball from hell.
The DJIA triggered a Rule of 4 Sell breaking the March/May/August bottoms line (blue).
The purple line is a close-only trend line from the October 2022 low.
Notice how it nailed the August 31st swing high.
Notice that the DJIA accelerated from my Power Surge pattern…a 3rd lower high.
It looks like a wave 1 down into August 25th followed by an a b c corrective rally into September 14th.
The waterfall decline since September 14th is consistent with a wave 3 decline.
The only way that plays out today is 4200 breaks and we get accelerated momentum.
But if we turn red and build steam, heads up.
The scenario I’m eyeing is the possibility that we get a 2 day rebound for quarter-end and then go off the cliff in October.
That said, the SPX has not struck 4208 yet.
It would be interesting if we got a flush to the low 4200’s and then a rally into the weekend.
VIX has triggered a Rule Of 4 Breakout opening the door for continuation to 4200.
It could accelerate or it could backtest the breakout point around 18.
In sum, many traders I speak to all have their bottom picking hats on.
It’s a mugs game trying to pick a bottom given the structure, the seasonality and the cyles.
Let the market prove itself rather than trying to grasp at straws because we may be dealing with a straw that breaks the bulls back in shards.
If the short-term rally scenario plays out, most will be proclaiming a important bottom…just at the wrong time.
Should we get a rebound, SPX hourly resistance is 4307, my hourly Pocket Pivot Indicator.
If stocks do stage a rally, the call for a bottom in tandem with our expected rally in TLT will cause many to proclaim the a major seasonal low causing players to pile in.
Few will understand but will find out soon enough why yields are falling…and it’s not bullish for stocks.
We have water-falled, but we haven’t crashed. Tuesday was far from panicky selling.
Big names like AAPL, MSFT, CRM and AMZN were a source of funds.
Crashes by definition have to be quick and allow few to position for them.
It is this very mis-positioning that perpetuates the crash.
I could be wrong of course. But I have a unique method to back me up…unlike some who just have opinions.