By: Jeff Cooper
Hit and Run Trading Morning Report - November 6, 2023
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Bear Market Rallies Are Fast And Furious and They Can Unravel Just As Fast
“I’m just sitting here watching the wheels go round and round
I really love to watch them roll.”
-John Lennon, Watching the Wheels
“But all the clocks in the city
Began to whirr and chime:
‘O let not Time deceive you,
You cannot conquer Time.”
-W.H. Auden, As I Walked Out One Evening
The last Hit and Run report was titled Prelude To a Plunge.
Despite the explosion up from a perfected 90 days/degrees decline from the July 27th high and Friday’s continuation of the rally, I still believe we potentially poised for collapse in November
The rally off the October 27th low has played out from the speed of light to the speed of audacity, but I can’t help but wonder if Bear Market rallies are fast and furious, doesn’t it follow that a violent Bear rally could be followed by an even more fierce collapse?
The bigger they come, the harder they fall.
After all with all the chasing going on in the midst of last weeks 6.6% rip and the litany of tweets about another Breadth Trust buy signal just as we got in June/July, shorts have been vaporized.
At the same time anecdotal evidence suggests many players have been converted to bulls expecting this to be the tip of the iceberg of a year end rally.
With shorts scorched, a reservoir of buying power below the market has also evaporated with the heat of last weeks rocket.
While newly minted bulls will look to buy a solid pullback, what if the market unwinds the rally quickly trapping pullback buyers?
That will add more selling pressure by the bullish pullback buyers who have to puke up positions opening the door to a deluge.
A monthly SPX from the all-time high shows the key pivot at the 4240 region.
Why is the 4240 region key?
This is where the 3 Month Chart turned up (green arrow) at the 4232 region in June.
The SPX topped in July.
When the big Wheel of Time, the Monthly turns, it is wise to allow for 1 bar to let the market talk.
The 3 Month Chart turned down in the 4238 region.
So we have a powerful confluence at the 4232 to 4238 region.
The market has a memory; breakage back below this ‘confluence’ opens the door to Air Pocketism to the downside.
If this powerful recent rally buckles, it will shock market participants who bought into the notion that another October seasonal trough had just played out, validated by last weeks momentum with the proverbial year-end rally in full bloom.
From my perch the SPX is winding up for a 1000 point decline.
The unknown is which day in November it starts.
Interestingly November 22 is on the radar as it is 180 degrees straight across and opposite the 480/481 all-time SPY high.
That does not mean November 22 is a high necessarily.
If the cycles I’m looking at exert their downside influence, we could drop into late November.
15 years ago on November 21st, 2008, the NDX struck its Bear Market low.
It was the low around the world.
15 years is ¼ or 90 degrees of the Gann Master 60 Year Cycle.
As soon as the decline is validated, an alert will be posted on the Hit and Run Private Twitter Feed.
One of the key factors in determining trend is the behavior of the 3 Month Chart.
The 3 Month Chart turns up with 3 consecutive monthly higher highs.
It turns down with 3 consecutive monthly lower lows.
Below is a monthly Chart from 2008
The red arrows mark turndowns in the 3 Month Chart.
As you can see it’s a rare bird.
Notice there have not been turndowns at a lower high in 15 years.
Notice how every turn down in the 3 Month Chart has defined a low soon in terms of time and price.
Breakage below the October 2023 low will be a change in behavior and will issue a Time Trend Turn sell signal.
The 3 Month Chart is an integral part of determining the primary trend.
3 months is 90 degrees of the year and “squares” the 360 degree year.
90 degrees squares the circle.
The Monthly Swing Chart could turn up for the first time since the July high on trade above October’s 4393.57 high.
If this is a big bear market rally, a turn up in the monthlies should define a high soon in terms of time and price.
Notice the inflection point in the 4400 region.
The Monthly Swing Chart turn up is a scant 20 points away from Friday’s high.
It may feel like the market is on the A Train directly to that level, but the talented Mr. Market may take the scenic route, an A B C pattern which we’ve mapped in the Hit and Run Private Twitter Feed.
While last weeks rally was impressive, many bear markets have impressive rallies that last longer and go further than last weeks spike.
For example after 2000, the NAZ had 16 bear market rallies of over 10% averaging 22.7% before bottoming down 78%.
After 1929 the DJIA had 10 bear market rallies over 10% averaging 22.8% before bottoming down 89%
Yet the financial media loves to use a divining rod of 20% advances and declines to define bull and bear markets just like they point to funnymentals to explain market movements.
There were also large “return to normal” rallies just prior to the crashes in 1929 and 1987.
Last month we noted the following Fibonacci relationship.
It was 58 years from the 1929 crash to the 1987 crash
It is 94 years from 1929 to 2023
94/ 58= a Fibonacci 1.62
It is 36 years from 1987 to 2023
And 58 years from 1929 to 1987.
58/36 is a Fibonacci 1.61.
Trend and Time are not linear. They progress in a logarithmic Fibonacci spiral represented by my Square of 9 Wheel.
Interestingly 36 (as in we are 36 years from 1987) is 180 degrees straight across and opposite mid to late November.
In sum, in a bull market you can just buy and hold. Timing is not so important so they say… the market always comes back.
Buy and Hold makes market participants look like a geniuses.
We’ve all heard the old adage, “Don’t confuse brains with a bull market.”
Bear markets are different.
You need to short and cover, short and cover, short and cover.
In a word you need to Hit and Run.
You need timing.
As the Seer, W.D. Gann wrote, “Time is more important than price.
Risk must be measured by not just price, but by the amount of time one is in the market.
It’s Hit and Run versus Buy and Hold