By: Jeff Cooper
Hit and Run Morning Stock Report: January 23rd, 2023
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Bullish Or Bearish? Mr. Market’s Ready To Tip His Hand. What You Need To Know
“The soul never thinks without an image.” Aristotle
“In the long run there’s no luck in poker, but the short run is longer than most people know.” Rick Bennet
Everybody knows it’s a primary bear market.
The trouble is that what everybody knows on Wall Street is often not worth knowing---at least in the near term.
In other words, there are always two trends running concurrently in markets: the Primary Trend, or Major Trend, and the Secondary Trend, or Intermediate Trend.
When the Primary Trend is bearish and pointing down you can have significant counter-trend rallies within the context of the Secondary Trend and vice versa.
When they are in synch, significant moves play out.
So while there is no confirmation yet of a turn to the topside yet, there are indications that a confirmation may be on deck---not just validated by the pattern of the SPX itself but by focusing on what’s going on beneath the surface-- it’s a market of stocks, not just a stock market.
In short, many bombed-out techs are rallying smartly following elevated tax selling when a “graceful exit” via a Santa Claus rally failed to show up.
With that in mind let’s turn to the charts.
A daily SPX shows a Friday weekly close over its 200-day moving average.
Notably, the SPX was rejected from a kiss of its 200-day ma in August which perpetuated a major downdraft.
The SPX dropped 834 points from 4325 on August 16th to 3491 on October 13th.
October 13th left a major reversal. A large range of Gilligan Island buy signal.
A Gilligan buy is a gap down to a new 60-day low with a close at/near session highs (reverse for Gilligan sell signals).
These signals oftentimes do a good job of identifying Selling Climaxes. The larger the reversal, the greater the odds of an Intermediate Term Selling Climax.
The SPX carved out higher highs and higher lows from the October 13th signal into mid-December…60 days on.
From that point a larger correction played out; however, if the SPX clears and sustains over the mid-December high (4100), it will have made a higher high and a higher low on a larger structure.
If so, we should see accelerated momentum to a level flagged for Hit and Run members this morning.
The daily below shows the Combo setup the SPX is coiled in.
On Thursday we flagged the SPX was in the Plus One/Minus Two buy position in tandem with a 50% retrace of the December/January range and a backtest of the rising 20-day moving average (Holy Grail). The index exploded out of the setup.
Pulling back the lens shows a possible Cup & Handle Pattern with last week's 2-day pullback of the Handle.
Additionally, the “Cup and Handle” may be a Right Shoulder of an inverse Head & Shoulder pattern (bullish).
In this interpretation, the Left Shoulder is the June low and the Head would be the October low.
Notice that the SPX is coiled in a triangle.
Whichever way it comes out may see a genuine directional move. However, we must be mindful of a
False move in one direction first followed by a quick reversal in the opposite direction that will be the real deal or what I call a Triangle Pendulum.
As Hit and Run members were alerted going into the new year, there was a small triangle that was widely advertised as a Bear Flag.
The SPX came out of that so-called Bear Flag with an expansion of range on January 6th telegraphing higher.
On Thursday, the index pulled back to test the high from January 6th.
After Friday’s momentum, Follow Thru will be key…especially as Friday had a massive amount of options expiring. So let’s see if the SPX extends above its 200-day ma, which, in turn, will trigger a Rule of 4 Breakout-- a breakout over declining triple tops.
While I mentioned above that Friday saw the 3rd close over the 200-day ma since December, the SPX did eclipse its 200-day ma in February and again in March.
That said, February and March were early in the Bear Market and without the benefit of a base.
But now we have the “promise” of a base by virtue of a June-January inverse Head & Shoulders bottoming pattern.
Below is a daily SPX from December 24th showing converging Ghost Lines to a test of the August highs in the 4325 region.
Alternatively, breakage below the bottom of the purple triangle will likely see a failure below the bottom of the perceived inverse right shoulder. That would trigger a Blade Runner sell signal-- a failure through a right shoulder.
That will give us lower projections down to at least 3675.
We’ve got a Mexican standoff between a strongly bullish and strongly bearish resolution as the SPX coils into the apex of a large triangle going into a Fed Blackout period…January 21st through February 2nd.
Let’s see what the river card is.