By: Jeff Cooper
Hit and Run Trading Morning Report - January 11, 2024
The Big Picture
“Any fool can believe the truth, it takes a genius to believe a palpable lie.”
I’ve met many great traders throughout my long career.
One of the things I’ve learned that stands out is that there is nothing really special in what these folks do.
What I mean is that they don’t have any Holy Grail or secret knowledge or ability.
What they have is themselves.
What makes them top traders is not some method or “thing” that they figured out—it is their ability to find something that works, a method, and stick to it if it has proven itself through many cycles rather than discarding the method when it stops working.
Every strategy “stops working” for a while at some point.
The methods I use are the Time, Price and Pattern.
You almost never hear me talking about indicators.
This is because indicators are descriptive not predictive.
Most all indicators are derived from price or price and volume.
They are of second degree magnitude. Why not go right to the heart of the matter.
I believe in going right to the horse’s mouth: time, price and pattern.
Most people start out in this game looking for that one “thing”, that one big indicator or strategy that will show them how to win.
Most people think if they can just find the secrets that made the greats great, they’ll be able to master the trading game.
In truth, THE secret is that there is no secret.
Because nothing works all the time in the markets.
While Gann quoted King Solomon often saying, “There is no new thing under the sun,” however,
Markets, like the year, have their different seasons.
Traders also have their different seasons, their win/lose cycles.
We are all naturally averse to losing. But the valuable lesson is that in order to win big you love to take small losses.
Because then you will never take a large one.
Tip: to be a great trader you have to be a great loser.
The problem is we are not wired that way. The culture teaches us to despise being a loser.
Evolutionary we are hard wired to avoid anything that has the taint of loss.
Why was Jesse Livermore a great trader?
“Losing money is the least of my troubles. A loss never bothers me after I take it. I forget it overnight. But being wrong---not taking the loss---that is what does damage to the pocketbook and to the soul.”
Of course Livermore’s occasional failure to follow this rule is what led to multiple blowups he experienced throughout his career.
It’s easy to get into trouble in the market: anyone can pull the trigger on momentum; the art is in the selling.
That is where the Square of 9 Wheel (The Wheel Of Time & Price) comes in.
It’s hard to one to sell when all gears are in synch.
No one wants a divorce when things are going great guns.
The great gift of the Square of 9 is that in integrating Time and Price it is like measuring a third dimension.
It allows us to anticipate which is the art of trading.
As legendary trader Bernard Baruch said, “Successful speculation is about anticipating the anticipators.”
How do you manage risk if you can’t manage risk.
This is the great value of the Square of 9 Wheel.
When the momentum trade is in full swing---up or down---it screams “pivot on deck”.
For example the low following the top in early January 2022 was 349 (3490 cash) on October 13 2022.
Checking a Square of 9 shows that 349 squares October 13.
The market was getting beaten by an ugly stick 1327 points down from the high in NINE months.
But the geometry of Time and Price was shouting turning point.
As W.D. Gann wrote, “When time and price square-out (balance out) expect a change in trend.”
Why is this relevant today?
Because January 10/11 squares-out/points to 349 (3490)
The deal is that not all square-outs are created equal.
While all important highs and lows are square-outs, not all square-outs are important highs or lows.
One must watch the behavior, the price action at these square-outs.
It’s interesting that the SPX is a whisker away from a new all-time high.
It has marched up from its October 13, 2022 low to test its all-time highs in 15 months.
As well today is January 11, the 51st anniversary of the false breakout into January 11, 1973.
A vicious 2 year bear market followed.
I’m not saying that’s what we’re going to see from today, but I am saying that’s what we’ll see from the next high that will occur over coming months if it is not in January.
Here’s what I’m looking at:
A weekly SPX shows what are clearly the two biggest lows in the last 15 years---the March 2009 low and the March 2020 low (both of which were nailed by the Square of 9 Wheel…to the day (we’ll show in tomorrow’s report).
I connected both of these lows (blue trend line) and paralleled a line (green) from Volumgeddon, the LATE JANUARY 2018 top.
Notice how that line perfectly catches the Oct 2022 low. Wow.
Then I connected the pre-Covid Crash high in early 2020 and connected that to the series of highs going into the JANUARY 2022 top (magenta).
I then paralleled a line off the Covid Crash low on March 23, 2020.
The third backtest of the lower rail of the magenta channel was the July 2023 high.
It looks like the agenda is another backtest.
This ties to the 5000 region.
What is important to acknowledge is that the decline from the backtest of the July 2023 high
Looked like the Bear had begun in earnest.
In this game you have to hold to opposing outcomes in place in tandem.
This is the traders psychological cross to bear.
It is the double helix of success in speculation to do so.
The mind of the market is math (the market is geometrical and deterministic) but to believe that Mr. Market gives a cheat sheet to us willy nilly is an arrogance that has blowup many a trader.
It’s one thing to have a view, it’s another to set that view in concrete.
A few months ago we offered that the structure of the market allows for a Last Ditch Run to as high 5070 to 5200.
IF that is going to play out it should do so this year.
As shown yesterday 2022- 2024 squares 1980-82.
I think we have a two year topping process on the table in a mirror image foldback of 1980-1982.
Be that as it may, a break of the 4100 region triggers a Rule of 4 sell signal…a break of the well-defined trend line off the Oct 2022 low.
Breakage below 4100 opens the door to 3650ish.
Breakage below 3600 opens the door to 2750 region.
The big picture question is whether the decline from the January 2022 top was the first leg of the bear and this is a Secondary High (ala late August 2000) or whether January 2022 was a Wave 3 high with October 2022 being a Wave 4 low.
What that means is that whatever the next high is will be the end of the advance from 2009.
That is a big deal.
In sum, we are at an inflection point this month.
A monthly SPX shows the 3 Month Chart turned down in October when it traced out 3 consecutive lower monthly lows.
Now the 3 Month Chart has turned back up as of Wednesday. And we know that January 10th is a potential price/time square out as offered above.
As well the 3 Day Chart turned back up yesterday when it traced out 3 consecutive higher daily highs.
We have a new high on the SPX for the move off the October 2023 low.
A reversal that knifes back and stays back below 4793 issues a DAILY Soup Nazi sell signal.
A reversal back below the 4607 July 2023 high issues a MONTHLY Soup Nazi sell signal only if it occurs in January…this month.
So the end of January is in the cross hairs.
It is 90 days/degrees from the October 2023 low which in turn was 90 days/degrees from the July 2023 high.