By: Jeff Cooper

Hit and Run Trading Morning Report - December 5, 2023

Correction To Be Followed By A Major Top in 2024

One of the rules that that I have sometimes ignored to my detriment is the “Flush & Fifty”.

This means a flush of support, an undercut of well-defined resistance, and then a reclaim of the 50% retrace of the prior decline.

A daily SPX from the all-time high shows we got such an Undercut into the October 2023 low when the index snapped a Bottoms Line connecting the October 2022 low and the March 2023 low.

When a “flush-out” occurs followed by 50% of the range being reclaimed, typically it means a new swing high is on the table.

Subsequently the SPX reclaimed 50% of the July/October decline.

The 50% level came in at 4355.

This level coincided with a recapture of the 50 day line.

Notably the one-day pullback on November 9th kissed the 50 day ma and never went lower.

As you recall, because Nov 9th traced out an outside down day reversal, and the next session eclipsed the high of Nov 9th, the SPX triggered a Keyser Soze buy signal on November 10th---a Reversal of a Reversal.

Checking the above daily SPX shows we also got an Undercut Low at the important March 2023 low.

The SPX marched up to a high in July prior to breakage below the red Bottoms Line.

The Flush & 50 did not produce a new all-time high into late July 2023.

It will be critical to gauge the structure if the SPX drives above the 4607 July peak.

Notice the how the SPX has been respecting the black trend line.

Above the July high,  extreme exuberance could play out with a melt-up to the top of the red trend channel.

A melt-up could perpetuate a Throw Over to north of 5000 SPX in a Last Hurrah.

The current structure/resistance calls for a short-term pullback which got going Monday.

Although we got very stretched and overbought and divergences are everywhere, the divergences and overbought conditions can sustain for some time if indeed this is the final rally from 3492…the October 2022 low.

Given the momentum of the rally in November, the market may exhibit extreme FOMO and extreme exuberance. We haven’t fully seen that…yet.

As you know the key level for the retrace is 4497 which is 540 degrees up from the 4104 low.

Failure below 4497 region opens door to a 50% retrace in the other direction.

Assuming Friday’s high was the top prior to this correction, we get essentially the same 50% balance point on the way down or 4350.

The difference being that now the 50 day moving average is trending up…currently at 4360.

In sum, 2023 was a recovery year after 2022’s debacle.

2024 should see a resumption of the bear.

But as offered above this could entail a melt-up phase.

The two important time periods cycles indicate are January to mid-Feb  and then again in late March/early April.

January is 180 degrees from the July 2023 peak and 90 degrees from the late October 2023 low.

January is 720 degrees or two years from the all-time high.

Two years is an important cycle. A cycle means repetition.

The two year cycle is the first repetition of the 360 degree circle or cycle.

It’s an important vibration.

For example 2 years prior to the January 2022 top is January 2000.

This is where the pattern high prior to the Covid Crash started.

2 years before January 2020 is January 2018 when the market was coming off the Christmas Crash of 2018.

IF we get a multi-week corrective phase into sometime in January, a basing phase, as I’ve called it.

Then the melt-up phase could extend into late March/early April.

If instead the market finds a top between mid-January and mid-February, it will be the major high…

Perhaps the Final Top (since 2009 bottom).

Be that as it may, when the red Bottoms Line currently at 4350 (notice it now ties to the mid-point of the rally) snaps,  my expectation is a 5 wave decline towards 3500 plays out.

Tomorrow’s report will show the structure from 2009.

It is important to understand that a new all-time high above 4818 does not mean the coast is clear---

No more than a new all-time high in October 2007 was an all-clear. Quite the opposite.

Likewise if we should get a new all-time high in the first months of 2024 extreme caution is warranted.

It would be opposite the two Undercut Lows seen in the above daily SPX.