By: Jeff Cooper
Hit and Run Trading Morning Report - October 9, 2023
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Chaos, Complacency and Uncertainty
Like nature abhors a vacuum, markets abhor uncertainty.
As was the case with the Yom Kippur war 50 years ago, the market rallied the day after, then pulled back, then rallied into October 29th before collapsing 20% in six weeks.
So the uncertainty in the Mid-East as things stabilized saw markets rally---initially, then pure collapse: once the uncertainty clarified, came chaos in markets.
No one ever promised markets were logical.
The bottom line in 1973 is the Primary Trend was down. The Line Of Least Resistance was lower.
Such is the case currently.
No one knows what will come out of the current geopolitical situation.
But to think that the U.S. will go unscathed with its open borders seems naïve.
On Monday the shock of the attack on Israel initially took markets lower on the open, then price began to stabilize as the session progressed.
Actually the price action adhered well to our technical methods.
Our technical approach seeks to make sense of senselessness.
1) The SPX struck a first hour low, holding above our key short-term 4270 level flagged last week.
2) An upside ORB saw an initial knee-jerk pullback from Phil D Gap
3) But when the SPX offset the open gap from Monday morning triggering a Jump the Creek buy signal markets moved sharply higher.
In so doing, the SPX went into the Minus One/Plus Two sell POSITION.
I say position because this is a sell SETUP. It is not an automatic sell.
It is the price BEHAVIOR that determines whether another near term top is being struck or whether the market can extend.
Speculation is OBSERVATION.
It is not mechanical.
On the above daily SPX the red arrows define where the SPX 3 Day Chart turned down.
The green arrow shows where the 3 Day Chart turned up.
The green ellipse is the “circled” 3 Day Chart high.
You can see that the 3 Day Chart remains pointing down.
This is only the second time the SPX went into the Minus One/Plus Two sell position since the waterfall decline following the September 14th pivot high.
Let’s review the criteria
A Minus One occurs when the 3 Day Chart is pointing down.
The 3 Day Chart turns down with 3 consecutive lower daily lows (NOT CLOSES necessarily).
The 3 Day Chart remains pointing down until we get 3 consecutive higher daily highs.
This turns the 3 Day Chart back up.
This is not a buy signal in and of itself. It depends on the subsequent price action.
When the trend is strongly down, a turn up in the 3 Day Chart often times defines a high
The index went into a -1/+2 sell position on 9/29 and immediately rolled over.
The index went into another -1/+2 sell yesterday.
Taken together, the pattern shapes up as a possible A B C corrective rally.
There is a distinction with a potentially big difference between the 9/29 setup and the current one:
Now the SPX is approaching its declining 20 day moving average for a Holy Grail sell signal.
The last time the SPX failed from a Holy Grail sell was on September 20.
A Breakaway Gap followed producing a waterfall decline.
The SPX could easily push above Monday’s high turning its 3 Day Chart up and fulling testing its 20 day moving average; however, if we are indeed in the eye of an Intermediate/Primary Wave 3 decline then a turn up in the 3 Day Chart should define an important high soon in terms of time and price.
Checking a SPX weekly shows its 3 Week Chart turned down immediately off the July high.
The Weekly Swing Chart turned up in late August and defined a high.
Yesterday the Weekly Swing Chart turned up.
So coming hours/days should be pivotal because:
1) The Weekly Chart has just turned up and if we are in a strong downtrend it should define a high SOON.
2) The SPX is in the DAILY Minus One/Plus Two sell position, albeit the 3 Day Chart could turn up shortly.
3) A Holy Grail sell setup is on deck.
In sum, in strong downtrends we look to sell markets as they attempt to stand on their tiptoes.
In strong uptrends we look to buy markets as they crouch.