By: Jeff Cooper

Hit and Run Trading Morning Report - December 26, 2023

The Pain Trade For 2024

When a market (or a stock) goes parabolic support become ultra important on every pullback.

The SPX has clearly been parabolic

Yet it would not be surprising to see a Throw Over…a Pinocchio of the black Tops Line.

This is what occurred in July. When the index broke back below the Tops Line a serious drop unfolded.

Breakage below the magenta Bottoms Line defining the parabola opens the door lower.

The question is do we get a Throw Over first.

Wednesday’s low is going to be critical.

It ties to the magenta Bottoms Line near 4700 which is 90 degrees down from Wednesday’s Key Reversal Day high. 4698 is the low of last Wednesday’s Key Reversal Day and high for the move.

Breakage below would trigger an Angular Rule of 4 sell signal.

Notably Wednesday’s reversal occurred from a one year Tops Line (black).

Notice as well the confluence with the red Bottoms Line.

The market flushed when this Bottoms Line was breached in September.

Now it is a Ghost Line that is intersecting with the black Tops Line.

Taken together, this confluence should represent a turning point.

When the parabolic angle of the magenta line defining the trajectory off the October low is taken into account, this confluence is amplified.

Could the SPX accelerate again, from here?

There is nothing to say it can’t; after all, it’s in a Runaway Move.

As well the July peak Pinocchio’d the black Tops Line for a few weeks.

As offered above breakage below Wednesday’s 4700 ish low opens the door to a sharp down draft.

This is because the decline from late July to late October may be an A Wave with a B Wave in progress currently.

What that means is a C Wave decline to follow. C Waves are vicious.

Important support for any decline comes in at 4500. This is because 4497 is 540 degrees up from the October low.

Trade below 4497 opens the door to the blue Ghost Line, the line off the July top.

It points to 4350-4400.

Interestingly a 50% retrace of the advance off the October low is around 4440.

A drop to the 4350/4400 region may be a B Wave pullback to an A Wave rally off the October 2023 low.

That means a C Wave rally could define a serious top---pointing potentially, in a C Wave advance,  to the 5220 region as noted last week.

Let’s take a look through the lens of the hourlies from the July top.

I connected the July high with the early September high (red Tops Line).

Notice that the October low parallels the red Tops Line.

I connected the early September high and the late September high.

Notice the confluence at the October 27 low.

You can see that these confluences, intersections are often important turning points.

This underscores the potential significance of the trifecta of trend lines on the first chart.

You can see the hourlies have carved out a Rising Wedge or Ending Diagonal (brown) at current levels.

I have shown the initial support pivot at the 4500 to 4550 level.

I have also labeled the possible A Wave up from the October low, a B Wave decline and a final C Wave Measured Move rally to 5220 ish (assuming a pullback to this 4500 region).

As noted above if 4497 breaks it opens the door to 4350-4400.

Note the upper red Tops line.

Also notice that the Breakaway gap on November 14th occurred AFTER the hourlies broke out.

The hourly time frame telegraphed the acceleration.

Not only did November 14th see follow thru above the red Tops Line…but the follow thru occurred on a gap…a Breakaway Gap.

In sum, last weeks low at 4690 is important for the Runaway Move.

If it holds, then the SPX can get to where it’s going before January is over…north of 5000 ...possibly to 5220.

If 4690 breaks first then it potentially extends the time window into the end of the 1st quarter.

A big picture weekly SPY trend channel  from 2000 sets up the big decline in 2024.

I connected the March 2000 top with the July 2023 top.

I then paralleled a line of the 2009 bear market low.

A mid-channel line paralleled from the 2002 bear market low “proves the geometry” for the trajectory into 2024.

The mid-channel line caught the 2011 peak, the 2015/2016 lows and the 2020 low.

This month we highlighted the potential for the SPY to run to 520 (5220 SPX).

This ties to the top of the trend channel.

Interestingly (and eerily), 522 (5200) squares out with September 3rd---the top of another parabolic run that did not end well.

Notice that bot 522 and Sept 3 square-out with the end of February.

The message of the market is that we should prepare for the possibility of a drop to 300 SPY in 2024.

Tomorrow’s report will further analyze the prospect for 5200 region and a subsequent smash to 3000.

The Pain Trade for 2024 is a steep drop that few are positioned for.