By: Jeff Cooper
Hit and Run Trading Morning Report - October 4, 2023
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SPX Closes Below October 2022/March 2023 Line Of Most Resistance
The price action that’s ahead will determine who has experience and discipline trading and who wings it.
Caution is warranted.
This kind of market hurts bulls and bears alike.
It’s relentless.
A storm has arrived. It’s financial and political and geo-political.
Why didn’t bond yields rise more when inflation was 9%?
Why are bond yields spiking now that inflation has “fallen”?
Why are the traditional flight to safety sectors of utilities and consumer stables tumbling?
Is this what a global margin call looks like?
Something is ‘off’.
This is a dangerous environment. The unthinkable can happen.
They say when the time comes to buy, you won’t want to.
But you can tell the pioneers because they’re the ones with the arrows in their back.
They say not to fight the trend but 10 year rates rising .10% every day is not a trend…it’s a crash.
And that crash may be seeing a Buying Climax…a Selling Climax on TLT.
The Fed knows it’s unsustainable; the financial system relies on the stability of liquidity in the bond market.
I’m not talking about yields moving higher or lower over time--- I’m talking about bonds trading like a penny stock.
In other words, this is not the continuation of a trend, it is the capitulation the climax of the intermediate trend.
Anyone short TLT at this point might as well put an apple in their mouth and play pig at a luau.
When the turn comes in bonds its going to be the mother of all squeezes.
We keep hearing ad nauseam that gold is going down because yields are going up.
Yet rates dropped all through the 1980’s after their 1981 high. So did gold.
Rates rose all through the 1970’s and so did gold. They topped at the same time.
This is why I say correlation kills. Sometimes markets move in unison, sometimes they move in opposition.
Everything is going down at the moment indicative of a global margin call.
That doesn’t mean there will not or cannot be a countertrend to this margin call.
The vast majority assume the Fed will cut rates well before a market crash; however they were slow to act in 1987. It was only after Black Monday that Greenspan intervened on the Mother Of Turnaround Tuesday’s.
As well during the last major inflationary cycle of the 1960’s-‘70’s the Fed was also slow to act---cutting rates only when market crashes were almost over.
When flight to safety assets go down with everything else it is a liquidity event…a credit event.
But when your risk hedge goes down simultaneously with everything else…that’s panic time.
As for gold, it dropped in late 2008 with the Lehman Crash.
It dropped 34% from March 2008 to October 2008 while the SPX dropped 36%.
But by March 2009, the SPX was down 50% versus March 2008 while gold had rallied and was down only 7% versus March 2008.
The last major swing high in GLD was May 4th 2023 at 191.36. This ties to the all-time WEEKLY closing high of 190.81 on the week of August 3rd, 2020.
May 4th is straight across and opposite 169/170. That level was struck yesterday.
Early May squares early August underscoring the significance of this 169 region.
As well, GLD’s 3 Month Chart is now pointing down for the first time since early May 2019.
That was a launching pad for an 18 month advance to the all-time high in August 2020.
It was a parabolic run taking GLD from 119.50 to 194.40.
The last major swing low in gold was 150.50 in early November 2022.
150.50 is 180 degrees straight across and opposite early October.
This week is also important for TLT as we have a possible Time/Price square-out with 85 aligning with October 4th.
The SPX is careening to 4208 which is 540 degrees down from high.
However as flagged yesterday, the index may undercut the widely watched 4200 level drumming up some fear…especially if it’s a sharp Crocodile Dundee blade runner below the 200 day at 4202.
The normal expectation would be a knee jerk rally from that level.
NYSE declining issues were five times the advances yesterday.
Declining volume comprised over 80% of total volume.
While breadth was -2000/-2000 (NYSE/NAZ) observation has shown that while an oversold bounce can occur at any time as shorts scramble to take profits and others buy the dip, I would look for that bounce to ideally occur after a test/undercut of 4200.
My gut is that a washout low followed by a sharp bounce will be heralded by many as another October low.
Often declines with the degree of internal weakness we are seeing can string together a more extended series of consecutive declines than normally expected.
Furthermore, we do not have the characteristics of a cycle low yet; consequently, even if we do bounce, this cycles low is still ahead of us.
My expectation is that if this is going to occur it will play out soon.
Be that as it may, October 10/11 looms large as an important day.
There are many confluences with natural cycles, time and price square-outs and astro cycles that point to this date.
The worst portion of the 1987 crash happened below the 200 day moving average when it failed to act as support.
The DJIA had a one day attempt at a rally on September 25th. The subsequent 6 trading days have all closed well below the 200 day.