By: Jeff Cooper
Hit and Run Morning Stock Report: October 17th, 2022
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Snapback
“One lesson I’ve learned is that if the job I do were easy, I wouldn’t derive so much satisfaction from it.
The thrill of winning is in direct proportion to the effort I put in before.
I also know, from long experience, that if you make an effort in training when you don’t especially feel like making it, the payoff is that you will win games when you are not feeling your best. That is how you win championships, that is what separates the great player from the merely good player.
The difference lies in how well you’ve prepared.” Rafael Nadal
The following is from Thursday morning’s Hit and Run report:
“Yesterday market’s churned in a narrow range.
This is exemplified by an NR 7 Day in the SPX.
This is the narrowest range in 7 days.
These contractions in volatility are typically followed by expansions in volatility within 1 to 2 days…
While Wednesday started out smartly it was yet another fade job.
When the smoke cleared the SPX closed meaningfully below the 3590 'square' (359 is square August 16, the Secondary High).
That may be a prelude to Mr. Market taking a smash in the face before the weekend.
An hourly SPX shows a well-defined short-term triangle.
Often such triangles resolve with a false breakout of the triangle-- one way or the other…but often without follow through in the direction of the breakout.
Then when the price comes back in through the breakout point a yellow flag goes up on the potential for a false breakout.
When price actually breaks out to the other side of the triangle, I call this a Triangle Pendulum…
In this case, given that we closed at a new low for the year in the context of a raging bear market, the normal expectation should we first see a breakout above the top of the triangle is that if price starts to reverse we could get a nasty plunge if we get breakage below the bottom of the triangle.
IF A TRIANGLE PLAYS OUT TODAY IT WOULD NOT BE SURPRISING TO SEE A SWIFT DECLINE TO THE 3500 (SPX) level of lore-- the 50% retrace of the 2020-2022 range….
Yesterday’s NR7 Day at new lows for the year may be a prelude for a spike in volatility that could set a record before October is over.
BUT WE ARE MINDFUL THAT THIS TRIANGLE COULD EXPLODE TO THE TOP SIDE BEFORE CAPITULATION.”
A 10-minute SPX shows Thursday’s violent Triangle Pendulum that triggered at 3586 (right at our key 3590 region).
Once triggered the triangle perpetuated a 126-point rally leaving a Large Range Outside Up Day (LROD), leaving many market watchers to exclaim it was “up, up, and away” from there.
Friday morning’s Hit and Run Report followed up on the News Reversal…to recap:
“349 (3490) is square October 13th.
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.”
In sum, Thursday we noted on the Hit and Run Private Twitter Feed that a dramatic A B C pattern may be in play-- an A wave up (Thursday’s reversal), a B wave down (Friday) with an upside C wave to follow.
The upside target from Thursday’s News Reversal was 3710.
As the above 10 min SPX shows, on Friday the SPX dropped to the level where the Triangle Pendulum buy signal was triggered on Thursday.
If a C wave rally is on deck, this is precisely the ideal place it should start—from Friday’s close.
It is possible we get a new high above Thursday’s high.
Be that as it may, this pattern should lead the market into the heart of a 3rd of a 3rd of a 3rd wave decline---the heart of a dramatic decline.
A weekly SPX shows a Megaphone Top with a confluence of projections toward the 1800 region if the wheels come off.
Breakage below the February 2020 top opens the door to the 2500 region.
