By: Jeff Cooper
Hit and Run Trading Morning Report - January 3, 2024
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Q’s: Second Mouse Gets the Cheese For the Bears Opening Door To 395 Strike
“Based on a ‘natural cycle’ I’ve been working with recently, I expect a 4 ½% correction to start within days.”
The above is from Friday morning’s Hit and Run Report.
Like Clockwork Red, the selling commenced as 2024 kicked off.
Last week on the private twitter feed we were concerned that the market could get hit to open 2024 because of:
1) performance considerations force feeding FOMO to money managers
2) tax selling based on pushing profit taking out one year by waiting to the first trading day of the new year to lock in some gains.
We got it.
The leading tech stocks got creamed in the worst day for the Q’s since the rally began in late October.
QQQ greeted bulls with a Breakaway Gap that triggered an Angular Rule of 4 sell signal (a break of a 3 point Bottoms Line)
AAPL shed 7.33.
Our TEAM short tanked 12.35 on top of the 3 points it lost Friday.
Notice that TEAM left a large range Gilligan sell signal a week ago Monday.
It carved out 2 inside days before hitting Pay Dirt for us on Tuesday.
In addition to the Gilligan sell signal, TEAM had a Time/Price square out on December 22nd’s reversal bar.
Why?
TEAM struck 248 on Dec 22.
248 is 180 degrees straight across and opposite December 22.
We shorted SNOW. It hadn’t tested its 20 day moving average since exploding above it on November 7th.
What looked like a nice high level consolidation imploded as SNOW knifed with authority below its 20 day moving average…a Grail Fail (I refer to the 20 day moving average as the Holy Grail).
Now check this out. SNOW bottomed on October 26 at 138.
360 degrees up from 138 is 189.
189 didn’t reject SNOW.
It drove thru 189 satisfying a 180 degree Overthrow to 203 on December 14th.
Yesterday it closed below 189 opening the door to 175 and Phil D Gap from November 29th.
Hit and Run shorted SNOW yesterday.
One more example.
On Friday Hit and Run initiated two short swing positions in AMD, one at 141.90, the other at the other at 147.40.
We covered both on Tuesday’s plunge to 137.43.
We took the short positions based on a Time/Price square-out…again.
150ish squares Dec 29th.
AMD pushed to 151 on Friday, Dec 29 before tailing off to close at 147.41.
This was reversal was the tell for weakness yesterday.
AMD saw a Breakaway Gap on Tuesday with follow thru opening the door to 90 degrees down off the high at 129.
AMD slid below the 139 square closing below it at 138.53.
It looks set to fully test its 20 dma at 136.
Breakage below that opens the door to a 180 degree drop from high at 127 over coming days/weeks.
These are just a few examples of how to integrate pattern with the Square of 9 Wheel to anticipate a solid move.
Let’s take a look at QQQ, the leader.
The daily Q’s show they pierced their 20 day and bounced to close just above it.
Checking the above daily QQQ again, notice that last Thursday’s high for the move left a Gilligan sell signal.
It was a case of the 2nd Mouse Getting the Cheese.
Why?
Because the Q’s left a signal reversal bar on December 20th.
It never followed thru, squeezing a tad higher before leaving a stealth Gilligan last Thursday.
The 2nd mouse got the cheese after the 1st mouse (the 1st sell signal) got the squeeze.
The Q’s ripped higher after testing its 20 day moving average in early December.
Breakage below the 20 dma today could be another case of the 2nd mouse getting the cheese for the bears.
Last Thursday the Q’s struck an all-time high at near 413.
Given Friday’s Angular Rule of 4 Sell signal (a break of a 3 point Bottoms Line), we sent an alert on the Hit and Run Private Twitter Feed to buy puts.
90 degrees down from 413 is 393.
QQQ struck the 400 strike before bouncing to close at 402.60 yesterday,
Breakage below Tuesday’s low opens the door to 392 and potentially an undercut to the 390 strike for Friday’s OpEx.
This equates to a backtest of the last consolidation in late November.
As well today QQQ could turn its 3 Day Chart turn down on trade below Tuesday’s low for only the second time since the advance off the late Oct low.
If the QQQ 3 Day Chart turns down and the Q’s cannot hold and continue lower, the indication is they could kiss the 395 strike region by Friday.
However, Friday is January 5th which is 180 degrees straight across and opposition 188 on my Square of 9 Wheel.
IWM has not tested its 20 day moving average since exploding above it in November.
The 20 day coincides with Phil D Gap at the 195 region.
I don’t think we should underestimate the potential for a big drop to 195 or even the 190 strike being tickled before the weekend.
Yesterday IWM closed at 199.52.
This morning it’s getting clocked, down 2 points.
IWM, The Truth Teller did turn its 3 Day Chart down Tuesday with 3 consecutive lower daily lows.
90 degrees down from last Wednesday’s 205.49 high is 191,
Downside continuation today after this 3 Day Chart turn down opens the door to the 190 strike.
That said, in order for the Q’s to knife to the 190 strike they must offset the 20 day ma at the 195 strike and Phil D Gap at 193.90.
In sum, in late November Hit and Run projected a correction to start from December 20th
with a potential turning point in late January.
SPX left a Key Reversal Day on Dec 20.
Downside follow thru failed to show up and we squeezed higher toward the January 2022 ATH.
It looks like the 1st mouse (the 1st sell signal) got the squeeze and the 2nd mouse will get the cheese (the 2nd sell signal… Tuesday’s Breakaway Gap).