By: Jeff Cooper
Hit and Run Trading Morning Report - October 25, 2023
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Do Or Die At 200 Day
In a weak spike of 204 DJIA points and 30 SPX points, markets rebounded above the 200 day moving average on Tuesday.
The advance/decline breadth was lack luster at 1132/1057….NYSE/NAZ.
This morning’s report (written the night before the opening bell as usual) will be short as our analysis has not changed: markets are in an Intermediate Term downtrend.
The selling pressure is consistent with a powerful Wave 3 decline.
This is do or die for the bulls to avert a free fall.
The SPX undercut the early October lows and the 200 dma on Monday and theoretically Tuesday’s rebound may be considered a Soup Nazi buy signal.
This is because the index undercut the low of 20 days ago within at least a 4 day interval and turned back up.
However, the turn up is indecisive as yet and at the same time the decline below the October 4th low triggered a Keyser Soze sell setup: we have a Reversal of a Reversal…a reversal back below the October 4th upside signal reversal bar.
It’s Soup Nazi versus Keyser Soze cage fight.
Do or Die.
Since the September 1st high the SPX has produced 3 Minus One/Plus Two Sell setups.
Those are the 3 black arrows from 9/11, 9/29 and 10/17.
Trade above Tuesday’s high today would put the SPX in the daily -1/+2 sell position once again.
Slipping and sustaining back below the 200 day moving average suggests we may not get a second consecutive higher daily high.
As well a failure below the blue trend channel is indicative of the potential for a Katy Bar the door move.
This is because the trend channel and the 200 day moving average coupled together should act as beaucoup support.
Failure of these two in tandem to hold the SPX opens the door to a panicky decline:
When the normal expectation doesn’t play out, a tail event may be on the table.
Tail risks occur when a low probability event arises and investors who become more concerned about unexpected losses rather than gains act in unison at a well defined juncture…
In this case breakage below the 200 day for a second validating time and breakage below a trend channel.
Such a tail risk event gains probability in the fall season based on seasonal psychology and as annual performance concerns become front and center.
Not only is October infamous for blood on the street, but also for making troughs; however as you get thru October and that trough seems MIA, market participants may be prone to panic.
In sum, I do not think the market gets out of this phase without a panic. Just a matter of how severe.
Today the SPX squares out with 425.
So above 425 opens the door for a potential push higher.
Below 425 caution is warranted.
The SPX undercut the key 4208 region and reclaimed it but a meaningfully loss of 4200 again is an alarm that the second mouse may get the cheese for the Bear.
The anniversary of the 1929 crash, October 29th looms large:
This October is 94 years from 1929 and on the Square of 9 Wheel 94 squares mid-October.
If the Wheels come off, keep in mind that 383 (3830) squares-out with October 31st.
Trick or Treat, Do or Die.