By: Jeff Cooper
Hit and Run Trading Morning Report - October 20, 2023
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Will the market make history again in late October by crashing?
Today is the October monthly OpEx, just like Friday October 16th, 1987.
On Monday October 19th, 1987 the market crashed.
On Friday 10/16/87 the SPX cracked its 200 day moving average.
This followed a break of a 3 point trend line carved out over the prior month (a Rule of 4 Sell).
Currently the SPX is perched on a much larger 3 point WEEKLY trend line connecting the October 2022 low with the March 2023 low and the early October 2023 low.
In 1987 we were just coming off new all-time highs struck in late August.
The market is in a weaker position currently having struck its all-time high 21 months ago.
This speaks to the notion that we are theoretically in a larger cycle than 1929.
A Super Cycle.
Pulling back the lens in 1987 shows that there was a large ONE YEAR weekly 3 point trendline that ‘triggered’ the crash.
If the weekly ONE YEAR trend line from October 2022 snaps it may be a blaring siren that opens the cellar as tweeted yesterday.
Currently that weekly trend line resides at around 4250 ---just below current levels.
As in 1987 the SPX is flirting with a Friday weekly close below its 200 day moving average just below at 4230.
This week I’ve been flagging the importance of the 4280 level on the SPX as it is 90 degrees up from the early October 4216 low.
We closed just below it on Thursday.
I stated that Air Pocketism could show up to 4208 if this support was lost.
If this plays out it puts the market on a precarious perch.
This is because a key 540 degrees down from the July 4607 high is 4208.
Yesterday was a pivotal close because October 19th is square 426 on my Square of 9 Wheel.
The SPY closed right on this square.
A failure of this square to act as support opens the potential for a Swan Dive to 4200.
In sum, breakage below the weekly ONE-YEAR trend line coupled with breakage below the 540 degree cube at 4208 and a failure below the 200 day moving average at 4230 opens the potential for free fall.
Thursday showed signs of urgent selling:
- CRWD had a large range reversal.
- PANW was also a general in retreat.
- DUOL had a Swan Dive
- TSLA skidded into the ditch as it gets magnetized to our 205 square
- The chips cracked
Coupled with this urgent selling buyers are likely to keep their wallets in their pocket in front of a war weekend of rising aggression and rising rates. and the ghost of 1987 looming.
Downside follow through could trigger an avalanche of sell stops.
We have a confluence of support that if broken could lead to a dramatic decline.
- The 200 day moving average
- A 3 point trend line from October 2022
- The Time/Price Square-out at 426 SPY
- 90 degrees up from the October 2023 low at 4280 SPX
- 540 degrees down from the July 2023 high at 4208
A sustained break of 4200 opens the door for a drop to 3500…whether the market wants to take the elevator or escalator to that test of the October 2022 low.