By: Jeff Cooper
Hit and Run Morning Stock Report: December 23rd, 2022
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Mr. Bear’s Next Big Miss Direction Move?
“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventure. They will die poor.”
For traders, in long bull markets, we always meet folks who are making money hand over fist in whatever name is the darling of the day.
I knew a family years ago who was making a fortune in ROKU in the years after it IPO’d.
In my experience, there are typically two courses these stories take:
Either they ride the stock down…or worse, they add more shares as it falls: “if I liked it at 300, it is a steal at 200.”
They say more people lost money in RCA, the Icon of the Roaring 1920’s Bull Market, buying it on the way down, than they would have just holding it.
Seldom do we hear that these rockets are sold as they flame out.
This is just human nature as there is a tendency to think that strength on whatever time frame will be revisited.
And that is true in the middle of momentum.
But the nature of cycles is that once momentum is spent, and every willing and unwilling buyer is in, a natural cycle of emotions plays out.
The market is an emotional beast.
In my experience, the news breaks with the cycles not the other way around.
Think about this. AAPL rises and falls with earnings.
But how does that affect an owner of AAPL shares?
When more money falls to a company’s bottom line, it makes it attractive for a possible take-over.
Yes, greater earnings may see an increase in dividends.
But for the most part, the connection between earnings and a company’s price is not necessarily reasonable or rational.
For example, a behemoth like AAPL is not going to be a takeover target because of increased earnings.
How does the investor/trader benefit from stronger earnings?
As I said before, in some cases a POTENTIAL bump in the dividend.
But on Wall Street, perception is reality.
Earning’s are a raison d’etre for the Street, an excuse to raise and lower targets.
You know like when a stock is at 50, lower the target to 100.
Is there any more credence to a stock that is not an acquisition target, trending on earnings versus astro?
What truly drives a stock? Stories?
Just look at TSLA the last two years.
When a major change in trend occurs, price often unwinds to where the last uptrend started.
When price and time “overbalance” the last correction in an uptrend, the market is talking.
The one constant is that there are many things a market can do. One that it cannot do for long is sit on a spike.
The trick is that momentum attract ‘chaser’s (especially when interest rates were in the ZIRP Cellar), during these blow-off phases stocks go higher than the most seasoned veterans of The Street can imagine.
The secret of the market is Time.
W D Gann wrote that time is more important than price.
What that means is the greatest rallies and declines come in the last 10/20% of The Cycle, in time.
These are Buying Climaxes and Selling Climaxes.
Without knowledge of cycles and when price and time “meet” or balance out,
Every pullback, looks like the prior pullback in the bull so it’s hard to unequivocally see the change in trend unless you have a method.
My Square of 9 Wheel integrates time and price. That is the Method.
It allows traders to both anticipate a turning point and act when it is validated in alignment with my 3 Day Chart and 3 Week Chart Swing Methods.
My cycle work allowed me to make the following forecast in October 2021:
“The market will get hit hard in January kicking off a brutal bear market.”
At the same time in October we noted that the January 4th, 2022 all-time high squares-out with 350-349 SPY.
This translates to 3490-3500 cash.
395 is square October 7. The SPX struck 3491 on October 13 carving out a large range outside up day (LROD or Lighting Rod) in the process. At the same time, 3495 is a 50% retrace of the March 2020 low to the January 2022 all-time high.
The Square of 9 Wheel called it.
90 days/degrees from the October 7-13, 2022 square-out is January 4 to 10.
There is a price on the SPY that Hit and Run members are watching that squares out with this important time/price cycle
Above that level could perpetuate a strong rally in January. Below it opens the door to lower prices.
A rally in January could be sparked by the vacuum created by elevated tax selling --especially in the tech names beaten by an ugly stick.
A rally in January would have the bulls clamoring about the January Effect.
This could be a big Miss Direction setup for Mr. Bear.