By: Jeff Cooper

Hit and Run Trading Morning Report - October 3, 2023

An Autumn Panic

36 years ago, the wizards of Wall Street came up with “portfolio insurance” which involved selling stock index futures whenever the stock indices fell to “insure” against a draw-down.

The also “perfected” program trading by which the stock index futures and individual stocks in the index were tied together----not realizing that network structures sometimes interact in strange ways.

One fine day in October 1987, these two distinct systems worked together and drove the U.S. stock market into the ground.

Only by pulling the plug was a broader disaster averted.

Few believe that the news breaks with the cycles, not the other way around.

Nowadays, we believe we are much smarter.

Nowadays, we have “Vol Control” funds promise to dampen the risk of sudden stock market moves by selling stock index futures when realized volatility rises…as it does during declines.

Combine that background with ever-larger trend-following CTA funds, the illiquidity inherent in having over half of equity allocations in purely mechanical “passive funds” and the recent explosion in zero-day-to-expiration options and we might as well have created a new, more consequential doomsday machine.

The above is from Monday’s Hit and Run Report.

We went on to show Time/Price synchronicities between 1929, 1987 and 2023.

1)      It is 58 years from 1929 to 1987. My Square of 9 Wheel shows that 58 squares-out with October 29th, 1929, Black Tuesday. There is a frequency or vibration linking the time period to both crashes.

blue, 58

pink, July 30

green October 29th

If you were trading in 1987 and thought the pattern in both years was similar (it was identical) and had a Square of 9 Wheel you could have surmised that an Autumn Panic was on the table for 1987.

It is pertinent that 58 years points to July 30th which ties to the July 27th SPX high for the year (it will be).

This is one of the factors in my forecast that the high of the year in 2023 would occur in July followed by a dramatic decline.

The implication is an Autumn Panic.

Some would say it has already played out.

Clearly we’ve had a panic in bonds and precious metals, the UTIL and the RUT.

The SPX and DJIA are next.

We are 94 years from 1929.

94 squares October 14th which happens to be the day of a Solar Eclipse in 2023.
Interestingly there was a Solar Eclipse on November 1st 1929.

94, blue

October 14th, pink

Of course October 13th was the “so far low” of the Bear in 2022.

We are 36 years from the 1987 crash.

On the Square of 9 Wheel, 36 aligns with 481 (4810) the all-time SPX high.

36, blue

481, pink

Notice that October 14th is 144 Fibonacci degrees from this confluence/vibration.

Confluence is everything.

If we take the 94 years from  1929 to 2023 and divide it by the 58 years from 1929  to 1987 we get

The Golden Ratio, 1.62 or Phi.

Taking the 36 years from 1987 to 2023 and dividing it by the 58 years from 1929 to 1987 we get .62 (rounding off .618), the inverse of the Golden Ratio.

It is remarkable that the market couldn’t cobble together a relief rally for at least one day after the government averted a shut down.

But the truly remarkable thing is that while the SPX closed fractionally green, declines were more than four times advances on the NYSE on Monday.

The bond and stock market is calling bs on the government.

After 13 years of the Fed keeping the interest rate ball suppressed underwater, it’s not just going to bounce to the surface, it’s going to go perpendicular.

Rates aren’t just going to normalize, they’re going to go abnormal.

ZIRP has distorted market signals. The tape is trapped in a House Of Mirrors where we can’t tell reality from a hologram.

In this maze, there are no gurus, only cycles.

Time is more important than price.

We are coming up on the anniversary of the October 2002 bear market low on October 10th.

The 2007 bull market high was October 11th.

There were waterfall declines ending in October in:

October 19th, 1926

October 5th, 1931

October 19th, 1937

October 10th, 1946

October 22, 1957

October 24th, 1962

October 10, 1966

October 29th, 1973

October 4th, 1974

October 30th, 1978

October 22, 1979

October 19th, 1987

October 13th, 1990

October 5th, 1992

October 18th, 2000

October 13, 2005

October 15, 2014

If July marked the high of Intermediate Wave 2, a secondary high following the January 2022 all-time high, then the presumption is that the 3rd Wave decline we are in will drop below last October’s 3500 low.