By: Jeff Cooper
Hit and Run Trading Morning Report - October 5, 2023
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Conditions For A Wipe-Out
The Fed’s biggest fear coming off a boom (into 2022) is inflation.
So…they will only cut during inflation if they think the economy is headed for a cliff.
So…the pivot point is essentially---the Fed panicking because of something worse than impending recession.
So far this hasn’t happened because the Fed remains more scared of inflation
So when it becomes clear a Fed pivot is on deck, something’s already broken: Get Out Of Dodge.
Speaking of panic, there is a lot of talk this week comparing the current downdraft in the midst of ripping yields with 1987.
We were pointing to the synchronicities early this past summer. Now it’s in vogue.
Will that put the “maloik” on the pattern playing out?
Maybe, but sometimes a crash becomes a self-fulfilling prophecy.
That said the breadth in the last three weeks is the weakest since the first weeks of the bear market in January/February 2022.
The decline had a ways to go in time and price.
October 11 is on my radar for a possible waterfall (+ or -).
The October 2022 low of 3490-3500 squares October 11-13.
We got a square-out low there last year.
Is it possible a crash sees a plunge to that region?
This time zone also squares 408 (4080) and 368 (3680).
Are we seeing crash like behavior anywhere?
Oil is down 10% in 5 trading days.
Yesterday USO crashed through its 50 day line.
UNTIL is crashing.
Bonds have been crashing.
Regional banks like COF and CMA have been crashing.
Recent IPO’s have been crashing.
In the last 8 days of the 1929 decline and the 1987 decline, every advance was followed by a big decline. There was only one advance in those 8 days in 1929 and two in 1987.
Wednesday would be the second of the eight day stretch leading up and including October 11.
As well in the last ten days up to and including Oct 19, 1987, there was exactly ONE day of positive breadth on the NYSE it was only 270 net advances.
In the last 13 days there have been two positive NYSE breadth days. Both meager.
Nearly identical conditions.
PRICE FOLLOWS BREADTH.
We have the conditions for a wipe-out.
The comparison of Wednesday to October 13th, 1987 (6 days before the crash) is compelling comparing breadth and NYMO.
It was the last up day and it was extremely weak for an advance.
It will be easy to see if the comparison follows suit.
Downside momentum should pick up.
Wednesday morning we flagged 4270 as near-term resistance.
This is because the first leg down from the SPX July high to the mid-August low was 271 points.
The market rebounded to September 1st.
From there a Measured Move of 271 points is 4270.
The SPX knifed through 4270.
Yesterday’s high was 4268.50.
It looks like we may be backtesting this pivot.
Yesterday the SPX bounced off Tuesday’s drive to just shy of the 200 day ma.
As offered in yesterday’s report a bounce would not be unexpected.
Breakage now below the 200 day underpins the idea of an event…a Credit Event.
On November 1st, 1929 there was a Solar Eclipse.
The big crash was 3 days earlier.
This year we have a Solar Eclipse on October 14th.
3 days before is October 11th.
These eclipses have a similarity which we will walk thru in tomorrow’s report.
The synergy for an Event is compelling.
A weekly SPX from the 2007 top connection the 2018 highs (upper blue line) shows a blow off and a backtest.
The purple line parallels this tops line.
The lower blue bottoms line connects the 2009 low with the 2020 low.
These are the two biggest lows in the last 14 years.
The Bull Market Pivots.
It current comes in at around 3300, an undercut of the 3500 October 2022 low.
It also ties to the pre-crash 2020 peak.
Will prior resistance draw the market lower?
If the blue tops line is broken (around 4000), the door is open to 3300.
The second green line at 1800 shows the support in 2014 thru 2016.
Interestingly this ties to the purple bottoms line, the bottom rail of the rising trend channel.
The third green line is a Measured move lower on a logarithmic basis and ties to 1000.
THis is the November 2008 low. the low around the world, when the NAZ struck low, the low when many of the Generals bottom.