By: Jeff Cooper
Hit and Run Morning Stock Report: November 9th, 2022
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4100 or 3636?
Last month I showed a comparison of this year with 2008.
I bring the analog up again because it is remarkable-- at least so far.
Take a look at the two charts below side by side. The red line is a 50-week moving average.
It is helpful in seeing just how similar these two charts are.
The number of trading days is almost identical as well.
It took 39 weeks to reach the point 7 low in 2008 and 40 weeks to do it this year. In both charts, the market rose up to the 50-week ma at point 6.
The market reached its high point after point 7 four weeks later in 2008 and it has also made its high four weeks after point 7 this year.
That high was almost a 50% retrace of the decline from point 6 to point 7 in 2008 and was a 50% retracement this year.
The logical question is, “ So, what happened after the high was reached four weeks after the point 7 low in 2008?”
The answer to that question is shown below.
In 2008 the market held up for another two weeks and then began a serious decline that saw about a 50% loss of value at the final low in March 2009. Once the decline began, the market lost 35% of its value in six weeks' time. By the time the market reached its November low, it was down over 43%. That took another six weeks to happen.
The important thing is we are talking about an analog, not an omen.
Analogs are made to be broken.
So this certainly doesn’t have to happen. At the same time, it has been a remarkable analog and it isn’t broken yet, so it is probably a good idea to be aware of its message and show it some respect.
The yellow highlighted down arrow shows where we are currently in the 2008 analog.
One might assume that it shows we have at least two weeks before we have to worry about a decline.
I don’t read the chart that way.
To me, we have already had the 50% retrace, so in my view, the decline can begin at any time-- if it’s going to.
The other yellow highlighted up arrow is the March 2q009 bottom and the blue up arrow is the November low.
In sum, as flagged yesterday, 380-391 (3800-3810) squares out with November 8th.
The SPX rallied smartly through 3810 but then the rally faded completely with the index going red.
We stated that despite a possible break below 3800, there was good short-term support at 3790 which was a 20/50 moving average Bowtie on the hourlies.
In other words, this is where the 20 and 50-hour ma’s converged.
The SPX hit 3790 and ricocheted back to the topside nearly testing the morning highs before pulling back 20 points on the run-off.
Still, the SPX closed nicely above 3810.
Whether this is an indication of higher prices today remains to be seen.
However, breakage back below Tuesday’s intraday lows that follows through to the downside in an impulsive manner could see a quick drop to the June low…3636 region.
A daily VIX below with an RSI shows how oversold it is.
As you can see, it is a rare bird for the RSI on the VIX to fall this low.
Note that it got down to similar levels on March 29th.
Recall that March 29 was the next high after the January 4 all-time high.
What does this mean?
Who knows in this market, but when I see a reading lower than I have ever seen before it gets my attention.
Putting the two pieces together-- the 2008 analog and the VIX means caution is warranted.
Mid-November sets up as a turning point and a lot can happen in one week.
Will mid-November see the SPX drive to 4100 or drop to 3636?