By: Jeff Cooper
Hit and Run Trading Morning Report - October 11, 2023
Need help? Check out the Hit and Run Success Guide.
The Bull Trap
A daily SPX from the March 2023 low shows the bull run into the Secondary High in late July.
The SPX exploded out of a Crouching Tiger buy position on Friday.
This is an inside pattern, ie, a low for the move followed by at least one inside day.
The “crouch” occurs when the inside day(s) is violated without breaching the low for the move.
Typically the setup coils without exploding the same day, but Friday turned out to be a News Reversal Day with the setup triggering the same day leaving a large range outside up day (LROD or Lightning Rod).
I can’t help but wonder if the reversal was a ‘save the baby’ at the 200 day moving average.
A test of the 200 day moving average near the anniversary of the ‘so far’ Bear market low in the cross hairs of the seasonal October trough seems all too pat but then so was the picture-perfect rejection at the 200 day moving average on August 16, 2022 that perpetuated the flush into the Oct 2022 low.
Importantly, the low close for the current decline on October 4th occurred at the intersection of the declining red Tops Line and the rising blue Bottoms Line.
In other words a vertical line dropped from the intersection finds October 4th.
Be that as it may the SPX 3 Day Chart turned up on Tuesday for the first time since August 30th, 2023.
At the time, the index drifted a tad higher over the next two sessions, but essentially that turn up of the 3 Day Chart defined a high from which a waterfall decline started.
This rally could have more to go.
90 degrees up from the 4216 low is 4281.
The SPX knifed through 4281 on Friday telegraphing higher and pulled back on the hourlies on Monday to test the 4281 region before ripping to 4341 on Monday.
180 degrees up from 4216 is 4346.
The SPX eclipsed 4346 on Tuesday pushing as high as 4385 before tailing off to close at 4358---still above the 4346 square AND the 20 day moving average at 4344.
Yesterday’s late pullback suggests a test of the 20 day ma and 4346.
If we turn up from a pullback and push higher the overhead 50 day moving average looms large---currently at 4414.
I doubt a drive to the 50 day will contain a further rally.
The late August high exceeded the 50 day line as did the Sept 14 peak.
As well 360 degrees up from 4216 is 4479---well above the 50 day line.
Notice how 4479 ties to a confluence of the blue Bottoms Line and the red Tops line.
A drive that finds resistance at this 360 degree 4479 region may carve out a bearish 3rd lower high from the July high.
3 lower highs is a bearish pattern. I call it a Power Surge setup because fast moves often occur from 3rd lower highs.
Assuming we get follow thru that sees a breakout over the 50 day moving average, a subsequent reversal back below the 50 day line will signal a Bull Trap which may be the Mother of all Rug Pulls.
In sum a sharp rally lathers up the bullish belief that another October low has played out--- potentially at just the wrong time.
Early this month I mentioned that the market was vulnerable through November as to this phase of the Bear.
This is based on a natural cycle ---what is called the Mars/Uranus Crash Cycle.
Every crash that has occurred has done so when Mars is opposition Uranus.
Every time Mars is opposition Uranus does not see a crash.
This year Mars is opposition Uranus starting November 11.
At the same time the all time high of 481 (4810) is 180 degrees straight across and opposition November 22.
60 years ago (Gann’s Master 60 Year Cycle) saw the assassination of JFK on November 22, 1963.
It was a day that changed the United States forever.
Caution is warranted.