By: Jeff Cooper

Hit and Run Trading Morning Report - February 7, 2024

The Song Remains The Same

“Does that blue moon
Ever shine on you?”
-Toby Keith

The stock market produced a Hindenburg Omen observation on Monday, the first since September 12, 2023.

Once a second observation is triggered, there will be an official Hindenburg Omen signaling a potential market crash.

This intrigues me because as you know, I think there is a strong likelihood of a  a waterfall decline this year, probably in the first half of the year.

A few weeks ago we showed a monthly SPX pointing to the high 4900’s  where a mid-channel line (magenta) intersects with a rising Tops Line from early 2023 (black).

I have also drawn a declining trend channel (red) defined by the most important pivots of the last 2 plus years.

The top rail of the channel connects the Jan 2022 high and the July 2022 high.

The lower rail of he channel connects the June and October 2022 lows.

Extending the tops line  to the current time frame aligns with roughly 4540 which is the mid-point of the ramp from Oct 2023.

The presumption is a “normal” pullback would back-test this breakout point.

That’s around a 10% correction from current levels or around 500 SPX points.

Since 1928 we get a 5% drop ever 1.2 years, a 10% drop every 1.6 years and a 15% drop every 2.5 years.

The July to October 2023 correction (4800 to 4100) was 700 points…so well over 10%.

A waterfall event targets the lower rail of the red channel…that takes out the October 2022 low.

In sum, markets have dissipated their upside momentum. Breadth equals momentum.

And like a car that continues forward long after the foot is off the accelerator, the stock market can continue to grind higher before it turns down.

I am reminded of Winston Churchill’s line, “”An empty cab pulled up to 10 Downing Street and Clement Atlee got out.”

An empty cab pulled up to a new SPX high and a bull got out.

Crashes of course are rare birds and whenever talk of 1929 or 1987 comes up they are given short shrift…get with it, that’s the past, this is a different time, a different age.

There are many warnings. If you find it hard to care because he music keeps playing, you’re not alone. By the time stocks reached their bubble peaks in 1929 and 2000, investors didn’t care then either.

The song remains the same. Human nature doesn’t change.

I’ve been talking about 7’s a lot lately because 7’s have been coming up a lot.

From the top in 1929 to the top in 2000 was 70 years 7 months.

From the March 2000 top to March 2024 is 24 years.

Is there any relationship?

Yes. Maybe something maybe nothing but 70.7 and 24 square each other on the Square of 9.

Jason Goepfert reports:

The SPX is within .35% of a 3 year high.

Fewer than 40 % of its stocks are above their 10 day moving average., fewer than 60% afre above their 50 day moving average, and fewer than 70% are above their 200 day moving average.

Since 1928, that’s only happened once before:  August 8, 1929.

A 25 year top was 26 days away.

It’s impossible to know  exactly how long the SPX will resist the collapsing internals and the decline among most NYSE and NAZ issues, but the outcome is inevitable,

Like those who go out onto the thin ice of a frozen lake, everything seems find until it isn’t:

Panic is coming.

If I anchor zero on the Square of 9 to 2024, it squares out with Tuesday/this week.

Anchoring zero to the year 1929 squares out with Feb 17th.

Notice that the year 1929 also squares November 20/21 the crash low in 2008.

What if I told you that the year 1987 squares October 29th…the crash in 1929?

“Everything in existence is based on exact proportion and perfect relationship. There is no chance in nature, because mathematical principles of the highest order lie at the foundation of all things.” W.D. Gann