By: Jeff Cooper

Hit and Run Morning Stock Report: November 17th, 2022

Volatility Volcano Or Double Top On Deck?

This morning’s report is brief but addresses the bull market since the 2009 low.

A monthly SPX below shows a Close Only Line (purple) connecting the February 2009 monthly closing low for the bear market with the January 2018 monthly closing high.

Why did I choose January 2018 as an important “plot”?

Because the market was relatively persistent and smooth from the spring of 2009 into January 2018.

As you can see, January 2018 is when a Volatility Volcano erupted.

That the purple line perfects the slope and character of volatility is “proved” by the “kisses” throughout the smooth ride in 2013-2015.

Note how the Covid Crash came on cue following a Pinocchio of the purple Line in January/February 2020.

Fast moves come from false moves….don’t they?

The market has not been the same since January 2018.

The price action paints a picture of reversion to the mean of a contraction in volatility to that of pressure coiling and a subsequent expansion of volatility starting in January 2018.

Notice the THREE drives to a low:

Feb 2018

December 2018

And March 2020

The price action from January 2018 through March 2020 is a well-defined Megaphone.

Until it wasn’t.

What presented as a massive Megaphone Top morphed when the Fed poured gasoline on the pandemic fire and the market took out the top of The Meg and blew off.

Fast moves come from false moves…don’t they.

Now the SPX has returned to “the scene of the crime”: the purple Line.

The first red arrow shows a drop below.

The green arrow shows an attempt to reclaim the Line.

It fails, falling with authority back below the Line….the second red arrow.

Now the SPX is backtesting the purple Maginot Line.

The action going into year-end should tell the tale of the tape and set the tone for 2023.

Is it possible the entire downturn in 2022 has been a cyclical correction within the scope of another leg up?

Double Top anyone?

Anything is possible.

Interestingly the low for the year at 3492 ties neatly to a 50% retrace of the 2020-2022 range.

As well notice how the drive to 3500 grazes (roughly) the pre-Covid Crash highs.

Prior resistance becomes new support.

But if not, Get Out Of Dodge.

Until proven otherwise, it appears the SPX is carving out a bearish backtest of this purple Maginot Line.

An authoritative turndown from this region opens the door to a leg lower.