By: Jeff Cooper
Hit and Run Trading Morning Report - November 3, 2023
Hit and Run Links
Prelude To A Deluge?
“And now and then if we must start again”
-The Beatles
The SPX turned its 3 Day Chart up on Wednesday as it backtested its 200 day moving average.
Often in a Bear Market, a turn up in the 3 Day Chart will define a high SOON in term of both time and price.
Thursday’s continuation on a gap above the 200 day moving average suggested an agenda to 4325.
Why?
A weekly SPX shows the Neckline from the Head & Shoulders at the all-tine high nearly two years ago is 4325.
After the Neckline was violated, the index rebounded to kiss 4325 in August 2022.
The bearish backtest of the Neckline perpetuated a drop to new lows…the October 2022 low.
Fast forward to the Head & Shoulders top formation at the July 2023 high.
The Neckline is virtually identical being at 4333.
Thursday’s rally high was 4320, just shy of the 4325 Neckline from 2022 and the 4333 Neckline in 2023.
Notice that Thursday’s spike Pinocchioed the Bottoms Line connecting the October 2022 low and the March 2023 low.
Notice that the SPX has rallied to the top of a declining trend channel (purple).
Consequently we are at a “crossroads”::
The red horizontal Neckline
A backtest of the black Bottoms Line
A test of the purple declining trend channel.
If the SPX should top at this price confluence (+ or -),
It will have carved out a 3rd lower weekly high.
WD Gann wrote that fast moves often occur from 3rd lower highs.
If we should rollover in short order offsetting this weeks momentum, it would be conspicuously bearish.
In order for that to play out 3 things need to occur:
1) A Jump The Creek sell signal on trade below Thursday’s open gap.
2) A failure back below the 200 day moving average.
3) Breakage back below the key 4208 square
The low 4200 region also could carve out a possible inverse right shoulder.
So a failure back below 4208 is very consequential.
It would open the door to satisfying the Head & Shoulders targe of 4065 (the light blue horizontal line).
This Head & Shoulders projection at 4065 had better hold for those who believe another seasonal October trough and year end rally will play out.
Because…just below the 4065 region is the Maginot Line…the Bottoms Line connecting the March 2020 low and the October 2022 low.
These are the two biggest lows in nearly 4 years.
Breakage below the Maginot Line opens the door to 3500 and lower.
Drilling down to a daily from the all-time high shows the waterfall decline following the break of the Neckline in April 2022.
The Neckline was tested in August and rejected eliciting another waterfall decline.
Our Neckline was reclaimed in June 2023 but it was a pyrrhic victory serving only to install another Head & Shoulders Top.
Once again we got a plunge below The Line (red).
And, once again the index is rebounding to test The Line.
Is another waterfall decline on deck?
Is it Now Or Then?
In sum, frightening Bear Market rallies keep market sentiment from reaching the panic stage as they continually elicit false hope as to the bottom of the cycle.
This week’s spike is typical of genuine Bear Markets.
No Bear Markets have unfolded without such Bear Spikes.
It has been so long since a genuine Bear Market that few may have traded these environments and those that have may have forgotten how vicious Bear Market Rallies can be.
The two chart below shows Bear Market Spikes from 2001
Below are Bear Market Spikes in 2002
Last year we had a Bear Market Spike in September prior to the rollover into the October low.
In other words Mr. Market stood on his tiptoes just before getting knee-capped.
Spikes like the previous 4 days occur in every genuine Bear Market.
This Bear Market is no exception.
Indeed next week starts the Mars/Uranus Crash Cycle.
Typically when the market has rallied into this cycle it is reversed with sharply and suddenly.
In September we wrote that our expectation is that October would be ugly but it may only be the prelude to a deluge.
Remember the 60 year cycle of JFK’s assassination is 11/22/23.
November 21st, 2008 was the big low of the Great Financial Crisis.
It was the low around the world and the NDX low---March 2009 was a HIGHER low in the NDX.
This is important because this November is 15 years of 90 degrees of the 60 Year Cycle.
So here in November we have:
The Mars/Uranus Crash window opening
The 15 year cycle which marked a plunge
The Master 60 Year Cycle which market an event forever etched on the American psyche.
Caution is warranted.