By: Jeff Cooper

Hit and Run Morning Stock Report: December 13th, 2022

Bounce Or New Impulse?

“It is easier to fool people than to convince them that they have been fooled.” Mark Twain

On Monday, the DJIA was up 500 points on hopes that the inflation reading will be “only” 7.3% market participants look for a 50 basis point rate hike into a recession, all while the VIX is up 10%.

That’s 2022 in a nutshell. And I do mean nutshell.

It’s truly ludicrous that trillions of wealth is so affected by a few meaningless decimal points of a flawed statistic-- the CPI, and also by one or two sentences uttered by one human amongst 7.8 billion humans on the planet. Heeeere’s Jerry.

In Monday’s report, we said that we expected a bounce today.

I did not expect this strong of a bounce.

The market got twitterpated over M &A-- HZNP and COUP.

The idea of a bounce is derived from the SPX and VIX tracking the analog from 2008.

The following 2008 chart shows what followed the first 11 months of the 2007-2009 bear market.

The next chart lines up the SPX and the VIX in 2008

The SPX and VIX are repeating that 12th month overall pattern for the SPX and VIX.

If markets should track the analog perfectly, we would see the SPX bounce as it did yesterday and fall sharply Tuesday, Dec 13, after the CPI is reported.

We got the bounce on Monday depicted in the blue circled area on the above chart.

BUT while the SPX has been tracking the 2008 pattern generally, as I noted yesterday, when analogs fail, they often do so with a bang.

IF the SPX is to continue to track this analog tomorrow, the day following the blue circle would be the path of the SPX-- a sharp drop.

I’m not predicting the resolution here, but the analog is very interesting given the CPI followed by the Fed on Wednesday and the turn-up of the SPX 3-Day Chart on Monday.

If the market is bearish, the turn-up will define a high. soon. In terms of time and price.

Soon may have been Monday’s close.