By: Jeff Cooper
Hit and Run Morning Stock Report: January 25th, 2023
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Is A Deadly Bull Trap Lurking?
Over the last 7 weeks, we have tagged a key resistance line defining the bear market 3 times and been rejected.
Until this week.
On Monday and Tuesday, the SPX closed above the Bear Line for two “confirming” closes.
The price action of the last 7 weeks prior to the “breakout” above the Bear Line is the highest concentration of tags of any period in this bear market.
This indicated that bulls would gain more and more courage and sure enough on Monday and Tuesday they pushed the SPX to the topside above resistance.
It must be said that both the 2000-2003 and 2008-2009 bear markets were marked by a similar resistance line that rejected every top, EXCEPT FOR THE LAST TOP RIGHT BEFORE THE BIGGEST DROP IN EACH OF THOSE BEAR MARKETS.
The first chart shows a declining trend line (purple) that defined and dominated the bear market.
In March the SPX staged a breakout over the trend line in tandem with reclaiming its 200-day moving average.
This was a massive Bull Trap prior to a crash.
The second chart shows a similar declining trend line (purple) that dominated the Bear Market.
The SPX delivered a false breakout, a Bull Trap, in May 2008 in tandem with a Pinocchio above its 200-day moving average before crashing
.The third chart below shows the SPX from January 2022.
It also shows a breakout above the Bear Line dominating the prior 12 months in tandem with a push above the 200-day moving average.
Breakage back below The Line that sees downside follow-through could be another massive Bull Trap prior to a crash over the coming months.
This is a major turning point. Either we’re going to test the August highs…180 days/degrees ago in the coming weeks or this is a Trap Door that will see the market plummet starting over the next week.
The chart below drills down to show a daily SPX from November.
I started a trend line (blue) where the SPX broke down in December and extended it.
The SPX hit its head on the trend line on Monday.
I paralleled a line off the December low to create a trend channel (blue).
Breakage back below The Bear Trend Line shown in the previous chart and the 200-day moving average suggests a false breakout opening the door to a test of the lower rail of the blue channel.
Below that it’s Get Out Of Dodge time.
Notice the little rising purple trend line. If extended, it ties to Monday’s high.
Additionally, it can be argued that the SPX has carved out a Head and Shoulders (red).
Consequently, a break of the lower rail of the blue trend channel doubles as a Neck Line.
So that is the Maginot Line for the bulls.
Conclusion. Above I stated that if a waterfall decline is on deck it should start in the next week or so.
Start. Not finish.
The 60-month cycle is a fractal of W D Gann’s Master 60-Year Cycle.
60 months ago Airpocketism started in late January 2018.
It led to a year of intense volatility that ended with another crash.
60 months before January 2018 was January 2013.
This is when the SPX first cleared the pre-crash pivot high from May 2008.
It took 5 years to eclipse that 1440 region on the SPX.
60 months before January 2013 was January 2008 which kicked off the Bear Market and the Great Financial Crisis.
60 months before January 2008 was January 2003. The SPX dropped sharply into March 2003 which was a major higher low and the test of the October 2002 primary bear low.
If this Friday’s numbers deliver cool inflation news, the market could move higher to 4141 SPX.
However, if the inflation number is hot, it could be game on for the bears with a massive Bull Trap being sprung.