By: Jeff Cooper
Hit and Run Morning Stock Report: December 5th, 2022
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Some Like It Hot
“The Fed caused the Great Depression” Ben Bernanke
“Nobody’s perfect!” Some Like It Hot, the movie
The jobs number was “hot” on Friday perpetuating a quick 50 point drop.
However, the SPX struck a low just after the open and grinded higher all day closing off just 4 points.
Some like it hot.
The Fed raised interest rates by 75 basis points in November.
The 30 year bond yield dropped sharply since then with TLT rising from 97 to 107.
Since October 24th TLT has rallied (long-term bond yields falling) from 92 to 107
The bond market is thumbing its nose at the Fed.
A weekly TLT started screaming buy signals since late October.
1) Weekly Train Tracks.
Following a large range weekly decline to the low for the year on the week of October 17th, TLT knifed back to the topside the following week.
2) The next week TLT traded inside but the following week (wk of November 7th, TLT left an outside up week.
3) Subsequently, TLT turned its 3 Week Chart up. This is one of my primary trend indicators.
4) Importantly TLT extended after turning its 3 Week Chart up. A bullish sign.
Hit and Run members initiated a long swing position in TLT at 94.60 closing out the position for a 5.40 gain in mid-November in tandem with the turn up of the 3 Week Chart.
With the SPX showing 3 consecutive closes over its 200 day moving average and a weekly close above the 200 dma. Tuesday December 13 is CPI, Wed December 14 is Fed Day, and December 16 is last quarterly Opex of year
Will the market like a hot CPI?
If the Fed raises the expected 50 basis points on Wednesday and the bond market keeps rallying and the 30 year yield falls another 50 basis points, that is going to make the Fed take notice with the most inverted yield curve ever-- screaming recession.
The two main criteria by which I determine the near term trend, the 3 Week Chart and my Square of 9 Time & Price Calculator are projecting higher for TLT. This “suggests’ the CPI will probably not be “hot”.
TLT struck a low of 91.85 on October 24th.
Markets move in 90 degree divisions of the 360 degree circle.
90 degrees up from 91.85 is 102.
TLT cleared 102 and then pulled back to that region and turned up
This opens the door to the next 90 degree “square” higher which is 112.
There is a strong likelihood TLT overthrows 112 pushing to its 200 day moving average at 114.
Interestingly, 113 is 90 degrees square October 24th the low day with 113 aligning with the January 21-24 region, which is 90 DAYS/degrees from the October 24th low.
So we have multiple time/price square-outs projecting to 114 in mid to late January.
Financial markets are one of the most difficult things to forecast.
The problem with forecasts is that multiple rolls of the die might favor a particular outcome and your process while the forecast can be very wrong on any single roll of the dice…wrong for the right reasons and setup.
But, if you have something that you are sure about based on geometry and probability, that gives you the confidence to make a forecast…and to bet on it.
For me that something is the Square of 9 Wheel and my 3 Week Chart and 3 Day Chart.
In sum, the drop in long-term bond yields has backstopped nice rallies in the growth glamours of late.
Names include AMD, NVDA, ETSY and NFLX, to mention a few.
However, 4075-4080 SPX is 180 degrees straight across and opposite October 13, the low of the year.
Time points to price, price points to time.
The SPX struck a high at 4080 on Wednesday.
Each high this year has been associated with the VIX at current levels.
Either last Wednesday was the start of an impulse higher or it was an exhaustion.
With the Street embracing the idea that a Christmas rally has started, I can’t help but wonder that even if that is the case, the market gets hit into the last option expiration of 2022 before a possible rally into year-end/early January and the one-year cycle.