By: Jeff Cooper

Hit and Run Trading Morning Report - January 19, 2024

Thinking In Patterns

90 % of how I trade revolves around pattern recognition as I’m sure you gleaned from my Hit and Run books.

Recognizing patterns allows us to predict and expect what is coming.

The process of pattern recognition involves matching the information received with the information already stored in the brain.

Trading is an anticipation game.

Pattern is the mother of anticipation.

It’s important to have a road map on multiple time frames because that forces you to acknowledge

When things aren’t playing according to your expectations rather than letting all price action roll off you like water off a duck’s  back.

That’s why I write these reports.

Without you to write them for, I wouldn’t be drilling down and doing the work.

So while some wise guys sometimes ask ‘if I know so much why do I write about it’…in truth the answer is it’s a selfish endeavor because I get so much back from putting the time in.

The trick about patterns is to always look at multiple time-frames.

I was absorbed in the dailies and the 10 minute chart of the SPX when I missed the message of the hourlies on Thursday.

That message was an hourly Plus One/Minus Two pullback buy setup.

Thursday morning the SPX gaped up, braking above a short-term Tops Line (magenta).

The market faded mid-day but set up a Combo buy signal:

1)      A pull back to the lower rail of the black trend channel

2)      Coincided with Phil D Gap

3)      Backtesing the magenta trend line

4)      But sealing the deal was the hourly +1/-2 buy setup.

In sum, the 3 Hour Chart was pointing up (green arrow) for a Plus One.

Then we got 2 consecutive lower hourly lows for the Minus Two part of my Swing Method.

The SPX exploded showing the power of this pattern which exists on hourlies, dailies, weeklies and monthlies.

Thursday’s late momentum opens the door to a backtest of the broken black trend line at 4800 region.

Is the 480 SPY strike the agenda for today’s Opex.

The question is if it we get an up Opening Spike to 4800 + what does the market do for an encore?

I say this because pulling back the lens shows a potential Megaphone Top pattern.

There are other reasons to temper the FOMO contagion produced by the broadening out of the Mag 7 to include other techs…several of which are “coming out” of Cup and Handle’s exemplified by TW.

APGE is a biotech coming out of a Cup and Handle.

Other factors that warrant caution are crystal clear in the array presented below

The top panel shows that since December 28th, 2023 SPX has gone sideways…returning to that December 28 peak area yesterday.

The subsequent four frames speak volumes about risk inherent currently.

1)      The Advance/Decline Line has fallen by 4400 units in that same time.

2)      The Equal-Weighted SPX has fallen 200 points.

3)      IWM has fallen 8%.

4)      NYMO has fallen from +56 to -62!

The message is clear. We may get a new SPX high but it may mirror the thin ice in late 2007.

The time frame between late January and mid-February will be critical for the subsequent 2 months.