By: Jeff Cooper

Hit and Run Trading Morning Report - October 27, 2023

Surprises Happen the Direction Of the Downtrend

As I write this Thursday night, it appears the market is set for a snapback.

While the SPX has two confirming closes below its 200 day moving average as well as multiple closes below the October 2022/March 2023 Bottoms Line, a rebound to backtest the 200 day moving average cannot be ruled out.

As well today is a weekly OpEx and there is always the propensity for  Option Pinball squeeze plays.

Be that as it may the market remains in a persistent downtrend and in such fast declines, surprises are always in the direction of the downtrend.

This leg of the bear has not produced a capitulation stage, but it will ---possibly as soon as next week.

On the above daily SPX the significance of the  break of the blue Bottoms Line is  underscored by the fact that it defines one year trend channel.

Notice that Thursday  the SPX closed below a declining trend line from the July 2023 top.

It would not be surprising to see a backtest of the bottom rail of this magenta declining channel

A fast move from Thursday’s gap down was produced from an hourly inverse Cup & Handle.

A backtest of the bottom of the Handle could produce a rebound to the key 4208 level.

Yesterday’s report noted that 94 (2023 being 94 years from 1929) squares out with mid-October)

The above hourly SPX depicts the waterfall decline since October 16th.

This is consistent with a major Wave 3 decline of some degree.

Only a sustained rally above 4208 changes the near term picture.

Pulling back the lens to analyze the big picture shows a break below prior horizontal resistance at 4175 region (red horizontal line).

Prior resistance is supposed to act as new support. The fact that the SPX knifed directly thru this support is a red flag.

Whether or not the SPX backtests the “red line” remains to be seen.

If so it opens the door to 4208.

Theoretically, the index could rebound to as high as 4250 to backtest the weekly Bottoms Line (green) if it can reclaim 4208.

However, that looks like the short straw given the accelerated momentum following the weekly Minus One/Plus Two sell signal at last weeks highs.

In sum, having broken logical support …the horizontal red line,  a drop to 3828 could play out at any time.

Cycles suggest this is on the table before the end of November.

Potential bottoming action in bonds may be signaling capitulation/flight to safety on deck in stocks.

We flagged a Time/Price square-out in TLT at 83 for October 23rd.

An hourly TLT shows the large range signal reversal bar from the 83 region on October 23rd.

On Tuesday TLT tested the lows and rallied, turning its 3 Hour Chart up in the process.

Bullishly for the short-term TLT continued higher after turning its 3 Hour Chart up, following thru to knife above  its 20 and 50 hour moving averages and closing on its high yesterday.

This is the upside pivot:

It is into the open gap from Wednesday with a declining trend line just above at 85.

The declining 20 day moving average resides at 85.60.

However, breakage above 85 triggers a large Angular Rule Of 4 Breakout from the late August high.

If TLT breaks out (lower Treasury yields) it will be important to see if speculative sentiment in the growth generals can catch a sustained big or whether so much damage has been done that risk off rules.