By: Jeff Cooper

Hit and Run Morning Stock Report: October 19th, 2022

Breakout Or Minor Wave 2 In Play?

The daily SPX below shows a declining trend line from the August 16 Secondary High.

The September 12th high was a Bull Trap…a Pinocchio…a fake-out.

It occurred ONE day after the 3-Day Chart turned up gapping down the next day with authority leaving an Island Top.

The price action confirmed the idea that this was a Bull Trap and guides us accordingly on where to draw the trend line.

Trend lines are simple, but not simplistic. They are underrated.

The subsequent decline from the September 12th trap undercut the important June low at 3636 (google Nicola Tesla and the importance of 3, 6 and 9).

The Sept 30 undercut of the June low turned out to be a Bear Trap followed by a squeeze to 3800.

It kissed the declining blue trend line where it was resoundingly rejected.

Notably, another continuation Island Top was traced out.

The subsequent drop satisfied (finally) a 50% retrace of the 2020 to 2022 range (3500).

At the same time, it perfected a Time/Price square-out flagged in this space and on the Twitter feed at 349 (3490).

We got a News Reversal on last Thursday’s CPI drop to 3490 that carved out a Key Reversal Day-- a new low for the move with a close above the prior day's high.

It was a large range Key Reversal Day.

I wrote that last Friday had the potential to be a bullish pullback…with a Flying Elvis pattern setup.

This is where you get a big reversal… a surge following a persistent decline and then what looks like a failure, but then a continuation of the upthrust.

The action is as if price skydives and the parachute doesn’t open but the rip cord is pulled and on the second attempt price lurches higher to safety.

It remains to be seen if the landing sticks.

I named the pattern from the Flying Elvis’ from the movie Honeymoon In Vegas with Nickolas Cage who asks are these things (parachutes) foolproof?

“Hell son, as the king his own self said, ‘there’s nothin in this world foolproof ‘cept Coupe de Villes.”

Watch the clip.

The bottom line is Tuesday we got a sharp up-opening spike that broke out over the declining trend line.

While the SPX was up around 100 points after the open and pulled back to be up 10 points mid-day, it did not end up with the Bear Fade we’ve become so used to this year.

Despite closing back under the key 3730 region, the SPX lifted after hours on the heels of the NFLX report.

The jury is out as to resolution at 3730 which is 360 degrees up from the 3490 low of the year.

The jury is out as to whether we’re dealing with another Bull Trap.

My expectation has been that an A B C rally would unfold in keeping with the green label.

Notably, there is another A B C on the table…the red label.

This is the A up from the Sept 30 low followed by a B wave down to last Thursday’s CPI Key Reversal Day…in turn, followed by what may be a C wave up that may be incomplete.

As offered, 3850 is a key 540 degrees up from the low of the year. That may yet be satisfied.

If 3850 is cleared and sustained, it may open the door to higher prices and we may be dealing with a change in the nature of the market.

October is tricky because it is the month of crashes -- but so is November-- and it is also the month of troughs.

In sum, breakage back below the declining blue trend line is a red flag.

Back below the horizontal black line is trouble in river city.

We had a decisive break below the June low in September.

It has led to a squeeze higher.

I can’t help but wonder if the first mouse gets the squeeze and the second mouse gets the cheese-- the bear cheese.

If this double A B C pattern is in progress it may be a minor wave 2 corrective wave.

If so a dramatic 3rd of a 3rd wave decline will follow.