Why Early To Mid-February Is A Key Turning Point

The January 21^st Hit and Run Report stated:

“On Thursday the SPX closed meaningfully over the key 4013 region which is 360 degrees up from the December low.

Another 90 degrees higher is 4077. Above that opens the door to 4141 which is 540 degrees or a “cube” a true square, up from the December low.

We are flirting with 4077, a test of which is likely to elicit a pullback, but my expectation is that 4013 should hold and that a full 540-degree move off the December low is likely on the table.”

The SPX pushed above 4141 on Thursday but reversed on Friday, February 3^rd to close at 4136-- just below this key 4141 level and on the important Friday weekly closing basis.

As well, 4155 is a 50% retrace of the entire SPX bear market.

The bearish view is that the SPX Pinocchio’d both 4155 and 4141 and closed back below both, opening the door for a fast drop as fast moves come from false moves.

The bullish view is that the SPX nosed above the 4141-4155 region and is pulling back in a knee-jerk reaction.

Legendary market operator W D Gann wrote that Time is more important than Price.

So let’s take a look at the three turning points we were looking at in the January 21^st report…now that 4144 has been satisfied.

1) March 20/21 is 90 degrees square the important December low--the infamous Bear Flag low which had many market participants poised and positioned for a leg down in January 2023. Instead, the market, led by the bombed-out techs, rocketed in January.

March 20, 2023 is the 23^rd anniversary of the SPX  Bubble Top in 2000.

Checking my Square of 9 Time/Price Calculator shows that 23 is square March 21^st.

By definition this means 23 conjuncts December 21^st which ties to the important low this past December. So we have some good synergy between December and the expectation for a turning point in late March. And, if the market stands on its heels and  tech runs hard into late March, an echo of the Buying Panic in late March 2000. We’ve already seen some panic buying in the last few weeks so if the market holds up on pullbacks, panic buying could turn into manic buying.

2)      The end of January 2023 is the 60-month anniversary of the January 2018 top when the market saw a mini-crash that started a year of intense swings. The 60-month cycle has exerted its influence since 20003.

3)      The 3^rd turning point on my radar is mid-February. Allow me to explain.

The range of the bear market is 1327 points. On the Square of 9 Wheel, the number 1327 aligns with mid-February. This is also 180 degrees/days across and opposite the important mid-August 2022 high.

At the same time, on  Thursday, the SPX hit an idealized target high at 4195.

Why?

Let’s take a look at the synergy and geometry between Time and Price as depicted on my Square of 9 Wheel.

First I anchor the “Zero Point” to 482 (4818 SPX all-time high, red).

Notice that squares out (90 degrees) with the important mid-August high, green.

It also is roughly opposite late November, the internal high, the high before the false breakout January high.

Now notice that 419 (4190 cash), orange, is square to the red 482 ATH and aligns with/vectors February 12^th, the end of this week.

If the SPX exceeds 4190-95, my expectation is that it will push to  428 (428) as 428 is 360 degrees straight up from the 349 low.

349 is a major point to measure from, not just because it was the 2022 low, but because it “proved” the geometry of its significance as 349 (3490) is square on October 13^th, the date of the 2022 low.

Most of the Street worships at the altar of price. Because that is how they are paid.

However, as Gann wrote, “Time is more important than price.”

This is why the message of my Square of 9 Wheel is so powerful-- because it integrates Price AND Time.

From a technical perspective we see that the SPX is 5 to 6 weeks from its mid-December low (the first rally week was an inside week).

This week is week 7 which often sees a turn.

The rally off the October 13^th low ran 7 weeks before a sharp pullback.

That pullback turned the 3 Week Chart down. That turn-down defined a low…the December low.

That is one reason Hit and Run was looking for a low in late December versus the new leg down widely anticipated in tandem with the perceived Bear Flag.

The normal expectation is for a turndown in the Weekly Swing Chart this week or next week at the latest.

The price action following such a turndown will be important to gauge for an ongoing rally.

As the following SPX shows, an Angular Rule of 4 Breakout occurred two weeks ago at 3950-4000.

It is critical for that region (which currently ties to a 50/200 Day Moving Average Bowtie) to hold any pullback or a Trap Door sell (a Bull Trap) may be sprung.

Notice the intersection of the declining red trend line with the black mid-channel at the August 2022 peak.

Now take a look at the upcoming intersection of the red and black lines in mid-February in keeping with the aforesaid potential square-out.

A failure below the lower black rail of the trend channel opens up the door for a plunge.

It is not the popular consensus but the economy is not fine. Record all-time high debt with the highest rates since 2007. Earnings are missing despite companies guiding down. Wages are lagging 40-year high inflation forcing people to work 2 jobs.

Unemployment will be the last show to drop.

Mohamed A. El-Erian

@elerianm

“It’s as difficult an economy to read as I can remember”

@LHSummers

Larry is correct. It’s particularly the case as (i) uncertainty about the short-term outlook for the labor market, inflation and monetary policy comes with(ii) longer-term and multifaceted structural uncertainty

Why do experts like Summers and El-Erian wondering why the economy is so difficult to read?
Could it be the trillions of money printing.

January saw a remarkable return to euphoria.

For example, TSLA was is up nearly 100% from its 101.80 low identified using the Square of 9 Wheel.

How? 102 is straight across and opposite November 4^th, TSLA’s all-time high in 2021.

So, the date of the all-time spike high “vibrated” off the spike low in price on January 6, 2023, where TSLA left a Gilligan buy signal.

In case you’re wondering, 2 price cycles (720 degrees) up from 102 is 197.

TSLA struck a high of 199 on Friday and tailed off for the second consecutive day to close at 190.

January was the best January since 2001. That was after the Tech Bubble burst in March 2020.

Investors believed it was a return to normal and scooped up the bargains in broken glamours from 2022.

There was a perceived “return to normal” prior to the May-November GFC Crash in 2008.

There was a 9-week “breakout” rally from mid-March to mid-May in 2008 prior to a near 50% plunge in 180 days/degrees. A nice Gann workout---50% in 180 degrees of time.

The  4818 SPX peak in January 2022 may have marked a major high in keeping with the 90-year cycle high from 1929.

After a plunge from the September 1929 peak, the DJIA bottomed in November.

A strong 5-month rally ensued.

I suspect the vast majority of traders at the time believed that the early 1930 rally was a return to normal.