By: Jeff Cooper
Hit and Run Morning Stock Report: February 2nd, 2023
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The most bullish structure is that the SPX is in the heart of a 3rd wave up.
If so the next week should provide some upside fireworks.
Failure to see that over the coming days will lead to a pullback consistent with this test of the 4144 and 4155 regions.
To recap 4144 is 540 degrees up from the December low while 4155 is a 50% retrace of the bear market.
The bear case is that we are completing an Ending Diagonal for a C Wave.
A Wave up starting on January 6th.
B Wave pullback starting on January 17th.
C Wave up starting on January 20th.
The C Wave started from a Holy Grail/Plus One/Minus Two buy setup flagged in this space at the time.
It’s important to write down these levels and keep them at your turret.
Underpinning the idea of potential further upside fireworks is the Rule of 4 Breakout over the 41q00 horizontal region.
Underpinning the bearish outlook is the divergence with the McClellan Oscillator flagged yesterday…
And, of course, this 50% retrace looks like it will be satisfied today.
As far as the more immediate bullish heart of a 3rd wave rally, as long as we remain over 4100 then Wave 3 is likely targeting the 4325 region.
If so, my expectation is that will be struck in mid-February which is opposite the mid-August peak of 4325.
As well mid-February vectors the range of the bear market---1327 for a possible square-out of the range versus a square-out of price or price and time.
I don’t think it’s going to take much time before we know.
Should the market indicate it wants to test 4325+, one can add positions on the little wave 4 pullbacks of the large wave 3 advances.
Conclusion. The market has gotten euphoric. Let’s let it talk over the coming hours to try to get a handle on what its intentions are. META is a good example.
Either the euphoria is marking a top or it is indicative of a melt-up in progress.
As I said yesterday, this crossroads hinges on whether this is a primary bear still part of a primary bull.
The primary bull case is that the June/October lows were a big Wave 4 from the March 2009 low.
That of course indicates new all-time highs on deck.
So never say never.
As long-time readers know, when a market reclaims a 50% retrace following a wash-out, a test of prior ATH’s is often the path.