By: Jeff Cooper

Hit and Run Trading Morning Report - February 14, 2024

Breakaway Momentum Gap & Bounce Into the Bell

On January 31st, the SPX gapped down, closing on session lows.

There was no downside follow-through.

The index marched to a new high as if it had a destiny to satisfy the same 5048 NAZ closing high at the top on March 10, 2000.

That was achieved on Monday but stocks reversed with popular indices leaving Topping Tails…

Lizard sell signals.

Was it just apprehension about Tuesday’s CPI?

Or did the market know something?

Tuesday’s hot CPI produced an even larger Breakaway Gap than that of Jan 31.

Following a mid-day rally attempt, the SPX rolled over down nearly 100 points on the day

Prior to a late rebound that trimmed the loss to ‘only’ – 68 points.

Someone just had to own them in the last 30 minutes? Right.

THEY can’t let the market close down 100 points can they.

Not only is the market broken as smart money manager Steven Einhorn stated recently,

But it is contrived and spoofed.

You can’t tell me that big money had all day to buy stocks but in the last 30 minutes everything changed and they just had to own them.

Be that as it may, stocks bounced into the bell.

Will the real Mr. Market please stand up.

He’s trying to stand up this morning, but my rule of thumb is weak markets when they try to stand on their tiptoes are sells.

And yesterday wasn’t just a weak market but a profoundly weak market.

Tuesday’s 230073 net declines on the NYSE was the single most negative reading in 17 months since a reading of 2467 net declines on Sept 23, 2022.

Of course that was THREE weeks from a major bottom

Is that the same picture currently with the market vertical?

No. It looks like as below, so above.

A mirror image foldback.

Turn the chart upside down.

As well, yesterday registered 2816 net declines on the NAZ, the most negative reading since -2835 must about one year ago on February 21st, 2023.

92% of Tuesday’s NYSE volume was in declining issues, 8% in advancing issues.

That is powerful downside momentum.

It turned the McClellan Summation Index down once again.

Some pundits commented that yesterday’s powerful  downside momentum was a sign of panic that marked a bottom.

This is from the same folks who claimed every time markets produced a 90% plus positive volume day, we were witnessing powerful upside momentum that would carry markets higher for many months.

Why weren’t these same folks calling those up days buying panics that marked a top?

That said, the tip off to yesterday’s whoosh lower was the gap open below 4977 SPX.


We alerted that this level is 90 degrees down from the 5048 high.

Let this sink in. We gapped down below 90 degrees directly off an all-time high.

We alerted that 180 degrees down is 4907.

Tuesday’s low: 4920.

The takeaway is that the aforesaid 90 degrees down at 4977 should act as powerful resistance.

4907 remains on the table after a short-lived rally is the strong likelihood.

Yesterday’s low was the closest the SPX has come to testing its 20 day moving average since the undercut of the 20 dma nearly one month ago.

The SPX undercut its 20 day m.a. on January 18th and January 5th.

Each of those instances were ONE DAY undercuts.

Like the Breakaway Gap on January 31st, yesterday’s Breakaway Gap did not produce a full test of the 20 day moving average. Close, but no cigar.

Moreover unlike the January Holy Grails (20 dma tests), those previous forays to the 20 dma

were multiple day drops versus the January 31 one day drop and yesterday’s drop of one day---so far.

So it will be interesting to see if we get a full test/undercut of the 20 day line in coming hours/days.

Especially since as we know, solid green openings on the heels of big sell days is NOT the stuff of genuine sustained upside reversals.

There is typically a much better chance of installing a genuine upside reversal following a big sell day if you get a down open. Or at least if you get a short-lived pop up open and a dive into the red.

In that respect a down open today with a drive to 4907 would serve two technical purposes.

1)      A downdraft here below yesterday’s low would produce a Plus One/Minus Two buy SETUP.

2)      The 20 day moving average would be fully tested.

3)      180 degrees down at 49i07 would be satisfied.

Given this morning’s green open (at least as I write) we may get an up open followed by a reversal that dives to the 4900 region.

In other words, this bounce is most likely a B wave after yesterday’s A wave decline.

C waves are vicious so caution is warranted if you’re feeling FOMO.

Interestingly last weeks low is 4918 so the index nose-dived to 4920.

The strong likelihood is the weeklies turn down over coming hours/days.

In sum, the news breaks with the cycles, not the other way around.
The CPI is seen as the culprit but in truth, the market was setup to decline, based on a convergence of time and price cycles.

The CPI was a good excuse.

Given the angle of attack to the downside, there is no guarantee that 4900 and the 20 dma will act as support.

270 degrees down = 4837.

A full 360 degrees down = 4767.

The SPX 50 day line currently resides at 4787.

The 50 day line has not been tested once on a pullback since the October 27th low (aside from a high level consolidation following the upthrust off the October low).

The SPX has not tested its 50 day in three months.

The 50 day line currently ties to a 2024 Bottoms Line produced by connecting the January 5th and January 17th lows.

The presumption is Tuesday’s powerful momentum will see a test of the 50 day line.

That’s the bull case.

However, the T Rex in the ointment is that a test of the 50 day line in this time frame means breakage below the January 2022 peak of 4818.

If we get there sooner than later, it may translate to a probe of that prior 2022 peak versus a failure below.

In January we wrote about the 2 year cycle producing dramatic downdrafts from January /February tops.

This occurred in 2018, 2020 and 2022.

I would respect this cycle as it looks like it’s exerting its influence.