By: Jeff Cooper
Hit and Run Morning Stock Report: October 21st, 2022
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Crash & Burn?
“Someone” wants out of the market.
It had every opportunity to extend over SPX 3730 on Thursday but collapsed from a Pinocchio of the key 3730 “square” to 3736 to close near-session lows at 3666.
To recap 3730 is precisely 360 degrees up from the 3491 low of the year.
In hindsight, a big rally was the logical expectation after our long-standing initial target of 3500 made early this year was struck.
We got 360 degrees and it looked like the SPX might satisfy a push to 3854 and 540 degrees up off the low before Thursday’s reversal.
It feels “someone” knows something and that something is a global liquidity crisis in debt.
The sovereign debt bubble is on pins and needles and the UK pension crisis is underpinning the risk off undercurrent running beneath the tape.
All the best and brilliant on Wall Street think they know how to hedge risk, but sometimes risk is just risk and can’t be hedge.
That occurs when counter-party risk falters and it’s not just one of the musical chairs that’s taken away but all the chairs are used as kindling for the Bear weenie roast.
Nowhere to run, nowhere to hide.
There is no way to know irrevocably, of course, if the historic Slide we’ve envisioned is on the table right here, right now.
But there are many congruent synchronous factors that are yelling.
If you’ve been in this game for any number of years and through several cycles, you can feel the tension on the tape. You get the eerie feeling that someone knows that something is broken as every rally is grist for the selling mill.
Every rally has the feel that it’s been engineered.
The recent rally off the 3490-3500 mid-point of the 2020-2022 range had/has the best chance to be something other than a short-term bear market rally.
However, that best chance is on the cusp of being squandered if the June low is taken out on a sustained basis.
We showed the daily SPX below earlier this week, with the horizontal line defining the dance above and below the June low this fall.
The bottom line is the June low was undercut, then reclaimed, undercut again, and then recaptured again in October.
A third time below the June low may be the third time a charm for the bears….ie, the Wheels may come off if this occurs.
When might that be?
The structure, the cycles, and Square of 9 suggest that may be right now.
The structure. As offered, a 3rd of a 3rd wave waterfall may be on deck here-- IF it’s going to happen this is where it happens from---ie between now and mid-November.
Cycles. We are a fatal 7 months from the Spring Equinox, W D Gann’s “Zero Point”, March 21st.
This is why there are so many plumb-line drops in October.
The Square of 9.
1929 was 93 years ago.
On my Square of 9 Wheel, 93 is square October 21. Today, Friday.
Now there have been very few, maybe ONE, Thursday, Friday, Monday, smash since October 15, 16, 19th, 1987.
The powers that be have honored President Reagan’s exclamation on Black Monday 1987 when he said,
“I don’t know what that was, but don’t let it happen again.”
Enter the start of the PPT, The President’s Working Group.
Oh, and how they’ve been working ever since.
Interestingly Friday, October 16th , 1987, was a monthly option expiration…as is today.
Interestingly, Monday is October 24th. This is the day of the first crash in 1929.
I suspect the vast majority then thought that day was IT…was Capitulation; but, THE CAPITULATION came on October 29th in 1929.
Well, as money manager Steven Einhorn said on Thursday to investors, “sell stocks, the Fed wants the market lower.”
If indeed the Fed “wants” the market down, what happens if we get an ugly Friday and Monday and the PPT is MIA?
THAT should scare the bejesus out of The Street.
Panic?
Central Banks are IN a state of Panic this week right in line with cycles, and the Law of Vibration.
Whether this week sees a historic washout is to be determined.
But as offered above, below 3636 put on your helmets and below 3490 Get Out Of Dodge.
How do I know Central Banks are in a State Of Panic?
The Swiss National Bank (SNB) has SUDDENLY lent $11 billion for one week to 17 domestic banks in order to finance the increase in swap lines margins with the Fed.
The Fed has nearly doubled the swap line margins as fear of default rises.
In sum, as each hour has gone by in the last few days more and more people are realizing as the Square of 9 Wheel has been able to forecast last fall crisis (one that was never supposed to happen in our lifetimes according to former Fed Head Yellen) for October/November…or both.
In the end, more and more people on The Street are coming to realize that the crisis will be in government debt.
This is something we’ve been saying for a long time-- that yields will ramp because of the resurrection of the Bond Vigilantes -- on steroids. Rates must rise to compensate for the level of risk of debt.
As well, as the economy slows tax receipts dwindle at the same time that rising rates create havoc with government debt service.
It’s a rock and a hard place.
And something’s got to give here.
It is possible this is the precursor to a major crash.
I created the trend channel below by connecting the swing low BEFORE the all-time high with the May low…the low BEFORE the important June low.
The validity of the line is underscored by the reversal of last week's low.
In other words, the June low was a Trap Door…a Bear Trap, so expressed by the longest rally of the year.
I paralleled a line off the bottom rail from the all-time high.
Notice how it defines the late March and mid-August rally peaks to perfection.
This “proves” the trend channel.
The takeaway is that we had an undercut…in June, but another break that takes out the bottom rail and follows through to the downside should see fear and capitulation.