By: Jeff Cooper
Hit and Run Trading Morning Report - December 28, 2023
The Line Of Most Resistance
“If we wish to avert failure in speculation we must deal with causes. Everything in existence is based on exact proportion and perfect relationship. There is no chance in nature, because mathematical principles of the highest order lie at the foundation of all things.”
Many years ago, a friend of mine was a trader for a large mutual fund.
He told me about one of the strategies that they would implement into quarter-end (and especially year-end).
It goes like this. A few weeks before quarter-end the mutual fund would take offers on targeted stocks without regard to price, driving up the price of their winners.
Their competition had to chase the same names due to quarter-end performance.
Then just before quarter-end they would pull the plug and hit the bids on these same names indiscriminately, catching their competition wrong-footed.
The effect was to damage the performance of the other mutual funds by a few percentage points
Nothing illegal. No one ever said we were trading against choir boys.
Whether or not this plays out into the weekend, I don’t know.
This rally has been such a tractor beam that it may be on automatic until our January turning point showed in yesterday’s Hit and Run Report.
There are two factors driving this tractor beam:
1) Performance chasing
2) Pushing profit taking into 2024 for tax purposes
Greed is goosing the tractor beam.
One thing we can say about greed is that it underpins the Wall Street bromide that tops are a process while bottoms can be a spike.
That clearly was the case at both the 2022 and 2023 October spike lows.
Checking the Greed index shows how it stayed elevated for nearly two months into the July 2023 top.
As legendary market operator W D Gann noted markets often key off anniversary dates.
If the market is pivoting off these two Octobers then there is a strong likelihood early January will be a turning point.
As well, as shown yesterday, January 9th vibrates off 349 (3490) the October 2022 low for the move for a possible Time/Price square-out.
It must be said that 349 “squares” October 13, which was the exact low in 2022.
Speaking of anniversary dates, one of the factors in my call in October 2021 that “the market will get hit in early January 2022 kicking off a nasty bear market” is that early January was the big top in 1973… 7 squared years earlier.
The Principle of Squares governs price and time.
The low following the January 1973 top two years later.
I can’t help wonder if the greedy green market goose is leading players into a Bull Trap a la January 1973’s false breakout and that cycles will exert their influence, inverting, for a another high two years from the January 2022 peak here in January 2024.
Yesterday we showed a series of long-term trend lines and trend channels pointing to the January to April time frame.
The black trend channel connects the 2018 crash low and the October 2022 low and parallels a Tops Line off the January 2018 spike high.
The blue trend channel is produced by connecting the Feb 2020 top with the Jan 2022 peak and paralleling a line off the October 2022 low.
The magenta trend channel is created by connecting the October 2022 low and the October 2023 low and paralleling a line off the high preceding the Oct 2022 low.
Wow. We’re clearly at an inflection point in tandem with an Ending Diagonal going into January but there is also a projection higher potentially to the magenta circle.
Is it possible the market shakes out with another surge later in Q 1?
Below is the Line of Most Resistance showing well-defined resistance.
Is it a Breakout or a Pinocchio?
Let’s take a look at one Runaway leader, COIN.
COIN extended following a high level consolidation when it cleared the black Tops Line.
COIN struck a high of 114 in July 2023 selling off to 70 in October 90 degrees in time later.
My Time/Price Calculator shows that yesterday’s high of 187 is opposite 114.
For a square-out of the highs.
This is the geometry of deterministic markets as expressed by the Principle of Squares.
“There is nothing in the Universe but mathematical points of force”