By: Jeff Cooper
Hit and Run Morning Stock Report: January 18th, 2023
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A Rare Bird
In the last 93 years, the McClellan Oscillator was above +100, 15 times.
In the 1930s-- 8 times, seven during the 1929-1932 bear market.
Once as the 1932-1933 bull market began.
In the 1940s through 1999-- NEVER.
In the 2000s 3 times…once in the 2007-2009 bear market (in 2008),
Once in the 2009-2011 bull market as it began (in 2009).
In the 2010s -- it occurred twice in the continuing 2009-2021 bull market (in 2012 and 2016).
In the 2020s, once at the beginning of the last leg of the 2009-2021 bull market (in 2018) and twice in 2022 as the new bear market began.
Over the last century, there were only 5 readings of greater than 100+ in bull markets. Each time generated a pause or a minor pullback.
There were 10 readings in bear markets in those 93 years. Each led to a sharp decline or crash.
So, 15 times in the last 100 years, the MCO reached 100+.
The first was in JULY 1929.
It was just SEVEN weeks from the infamous September 3, 1929 top.
The next reading of +100 occurred 77 years later in March 2009, as the 2009-2021 primary bull market began.
It was a kickoff.
The next was in 2012, during the 2009-2021 bull market.
Then, next, in 2016, still during the 2009-2021 primary bull market.
The next was in early 2019, still during the 2009-2021 primary bull market.
Then finally two more in April-May of 2020, the last occurrences within the 2009-2021 bull market.
Let’s compare those to the ten +1000 MCOs that occurred in primary bear markets in the last 93 years.
1932, seven times.
The McClellan Oscillator >+100 is a reading that has only been seen 15 times in the last century and only half that many in our lifetimes. It is a rare bird. Rarer is still in a bear market.
That event occurred on January 12, 2023,
BUT, the key is whether markets are in a primary bull market or bear market environment.
In the case of the former, this event provides an ideal signal to go long.
In the latter, it is the opposite—the perfect region to short the market.
If this signal is occurring in a bull market, the likelihood is the SPX is going to new all-time highs.
If it is the latter, Get Out Of Dodge.
The structure according to Elliott Wave Theory allows for either interpretation-- as is often the case with Elliott Waves.
There is always an alternate scenario…and that’s fair.
But in a big picture like this, the interpretation according to Elliott Waves should be “clear” and it is not.
If we are going to new highs that means the 2022 decline was a Wave 4 low starting from 2009 low.
However, it certainly looks like the run from March 2020 to January 2022 was a blow-off…arguing that it was a final 5th wave.
Importantly, every primary bull market was preceded by panic and capitulation-- we have not seen and are currently nowhere near that psychological state.
Is it possible that the bear market in 2022 saw “slow-motion” panic and capitulation exemplified by the growth glamours-- stocks like TSLA, AMZN, and CRM to mention a few?
1) We are 60 months from the major Air Pocket that started in January 2018. This is an important time period as it is a fractal of Gann’s 60 Year Master Cycle. It is ¼ of Gann’s 20 year cycle.
Remember that year saw an explosion of volatility following the historically low volatility year of 2017. That year, 2018 started out with an Air Pocket and ended with a crash.
Examples of this important 5-year period are 1932-7, 1982-7, 1995-2000, and 2002-2007.
All low to highs.
The question is are we on track for a HIGH TO HIGH? We’re clearly not at an absolute high but this may be a relative high.
In the context of the aforesaid >+100 MCO reading, this warrants watching carefully.
2) The Bradley Indicator turn date was yesterday, January 17th.
Recapturing and holding 50% of the 2022 decline opens the door to the bullish interpretation.
That 50% retrace is 4155.
Interestingly the SPX December 2022 high is 4100. If that high is exceeded here in January, the index will turn its 3 Month Chart up.
If it occurs, and we are in a primary bear market, it will mark an important top, likely within a week or so.
If we are now in a primary bull market, the market will exhibit bullish behavior.
A knee-jerk pullback, possibly sharp, could follow a turn-up of the SPX 3 Month Chart.
But in a bull market that pullback will be made for the buying.