By: Jeff Cooper

Hit and Run Trading Morning Report - October 18, 2023

The New Not So Magnificent 7

“And all the roads jam up with credit and there’s nothing you can do. It’s all just bits of pater flying away from you.” The Road To Hell, Chris Rea

“Everything that happens once can never happen again. But everything that happens twice will surely happen a third time.” Paulo Coelho

On stronger than expect retail sales numbers, the market dropped from the open on Tuesday.

The SPX gapped down 32 points and quickly found low reversing sharply to the topside.

The tip off to the reversal was three-fold:

1)      The SPX triggered an ORB immediately. That is to say an Opening Range Breakout above the first 30 mins range occurred as soon as it could have.

2)      The index triggered a Jump The Creek buy signal by offsetting the opening gap perpetuating an extension higher.

3)      However both of these technical were in the over-arching context that the SPX had an agenda. That agenda as outlined in Tuesday’s Hit and Run Report was that there was a strong likelihood the SPX would satisfy a WEEKLY Minus One/Plus Two sell setup.

In order to do so the index had to trade above last week's high of 4385.85.

Simply put, the odds were that the SPX did not come this close to last week's highs without poking above them to satisfy my -1/+2 Swing Method.

Because the 3 Week Chart is pointing down (for the -1 part of the method) the +2 part of the criteria required two consecutive higher highs with the 3 Week Chart pointing down.

Last week traded over the prior week’s high and yesterday the SPX traded over last week's high.

When the market is in a strong intermediate downtrend, a weekly Minus One/Plus Two sell signal is often a blaring siren of an immediate new downdraft.

On cue, the market reversed to the downside virtually as soon as last weeks high was eclipsed.

After rallying 56 points off the morning low (+21 points on the session) the SPX reversed again shedding 37 points before rebounding to close flat.

Turnaround Tuesday Squared.

Wash on, wash off. The Hand is doing a good job draining volatility on both sides into Friday’s Opex:

Since last Tuesday’s high of 4385 the SPX has gone nowhere fast, closing at 4373 yesterday.

You can be sure when we get a directional move, it will be a doozy.

An hourly SPX shows the potential Triangle Pendulum sell setup on deck.

When an item breaks out of a triangle in either direction and then comes back in immediately and breaks the opposite side of the Triangle you get my Triangle Pendulum signal.

The SPX broke out to the topside but knifed back down; however, it has not violated the bottom of the Triangle.
If it does, my expectation is a fast move lower.

A daily and weekly SPX underscores why this is a critical region.

A daily SPX shows Tuesday’s reversal came after challenging its 50 day line.

A weekly SPX shows the weekly -1/+2 sell position in tandem with a push toward the 20 week moving average for a possible weekly Holy Grail sell setup.

A turn down from here on the weeklies on trade below 4283.79 opens the door to a possible 3rd of a 3rd of a 3rd wave down, where the most powerful price moves typically play out.

As posted on the Hit and Run Private Twitter Feed on Tuesday, “I don’t think there is anything between 4280 and 4216.”

Tuesday carved out a large range outside up day.

A Reversal of a Reversal back below Tuesday’s low, of 4337,  triggers a Keyser Soze sell signal.

Breaking the bottom of the hourly triangle would occur first at 4350-55.

So we have a confluence of pivots.

Thursday is the anniversary of the 1987 crash.

Interestingly, on my Square of 9 Time/Price Calculator, October 18/19  squares-out with 427 (4270).

Breakage below 4270-80 should see accelerated momentum.

The 1929 crash was 94 years ago.

On the Square of 9 Wheel, 94 squares-out with October 18/19.

In sum 94 (years ago) squares October 18/19 the anniversary of the 1987 crash…a ferocious synchronicity:

1)      Conflict escalates into a regional war with U.S. involvement

2)      OPEC responds with an oil embargo

3)       Iran halts passage of tankers through the strait of Hormuz disrupting global oil. Price of oil skyrockets causing inflation to explode

4)      Financial markets and banking sector collapse

5)      Debt crisis erupts across U.S. capital markets forcing the Fed to enact another bailout.

6)      Petrodollar trade collapses

7)      Hyperinflation emerges

The new not so Magnificent 7.