By: Jeff Cooper
Hit and Run Morning Stock Report: October 14th, 2022
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Yesterday, it was reported that September core inflation rose 6.6% from a year earlier, the worst case of annual inflation in 40 years since 1982.
Overall, the CPI rose 8.2% from a year earlier.
The news only increases the Penchant for Powell to pummel the U.S. with even more drastic rate hikes.
This news only fuels the Fed's misguided attempt to restore the credibility.
The market plunged on the news to satisfy a 50% retrace on the SPX of the 2020-2022 trading range…something we’ve been flagging for months in this space.
The reversal 3500 was not a rocket-- at least not initially. It was a Stutter Step reversal.
But when the SPX triggered an upside ORB, and a Jump the Creek buy (offsetting the open gap from the opening plunge in tandem with our Triangle Pendulum pattern), an explosive move played out.
The news reversal was a beautiful example of the Rule of Multiples anticipated by Wednesday’s NR 7 Day.
You can’t make this stuff up.
In sum, the SPX reversed from down 86 points to up 100 points…so a 186-point reversal.
The Fed wants the market down in a misguided attempt to squash the demand side to quell inflation; however, this is a supply-side issue.
This is something we’ll delve into in Monday’s report.
Powell is repeating the same mistake that the Fed committed after the stock market crash of 1929…raising interest rates.
They want it down, but they don’t want a crash that becomes contagious and threatens a crisis that, according to Yellen when she was Fed Head, would never happen again in our lifetimes.
So I suspect with all the chatter about an October Crash getting hyped, the Plunge Protection Team was on alert with a hot CPI when the SPX kissed 3500.
So the market reversed in a dramatic fashion forcing those looking for a repeat continuation of the swoon that greeted the last hot CPI number to cover.
When the market turned green and stuck, FOMO erupted.
If you recall weeks ago we flagged a convergence of Ghost Lines at the 3500 region for mid-October.
Moreover, 349 (3490) is square October 13th.
However, this is only one of a few converging Ghost Lines.
They exist at the 3100-3200 level and as low as 2600 in late October/to mid-November.
I get asked, “how important was Thursday’s reversal?”
Follow Through is key.
And even then those must be watched closely for false starts.
For example in the Bear Market of 2000-2002, there were 23 O’Neil Follow Through Days that did not mark the low.
When the stock market is setting up to crash, typically it will have several days where it rises up to 3% and declines about 4%, oscillating violently a week or so before the collapse.
It’s as if it psychologically, involuntarily agitates before hurling.
This happened in 1987 and 2008.
The Bear likes to shake out the shorts and lure in the Bulls so it can wipe out as many players as possible.
The Bear is against everyone.
Succinctly, I think the market can crash in October or November….or both.