By: Jeff Cooper

Hit and Run Trading Morning Report - March 6, 2024

Was That It?

“What It Was Isn’t All It Is”
-Fast Kitten, Albert Hammond Jr.

“There is little choice in a barrel of rotten apples.”
-William Shakespeare

On Monday we showed the following chart with a trend channel from the March 2000 top.

The Tops Line (blue) paralleled off the Bottoms Line (purple) was first hit in January 2022.

The decline off the January 2022 top overbalanced every decline since the 2000 top.

The implication is that the current test of this Line Of Most Resistance is a “double top” within the context of an A B C structure.

The A Wave decline was the selloff from Jan 2022 thru Oct 2022.

The B Wave is in progress from the October 2022 low.

The C Wave that follows will be a Crash Wave.

The presumption is it will test the bottom rail of the trend channel currently around 3200.

There is good symmetry surrounding that expectation as 3200 ties to the January/February 2020 pre-crash highs: prior resistance should act as new support.

Indeed if the 4818 January 2022 top is violated on a sustained basis it will break the above rule:

The prior resistance will have failed to act as support.

The next day markets dropped sharply targeting a 90 degree decline from 5150 which is 5078.

The index undercut 5078 falling to 5056 before rebounding to close right on 5078.

You can’t make this stuff up.

180 degrees down is 5007.

Having carved out an impulsive 5 waves down, the normal expectation would be to see an A B C.

An A wave rally may push to the region of the 50 hour moving average at 5096 to the 20 hour moving average at 5111.

Then a B wave decline could satisfy the 5007 region before a C wave rally completing a Wave 2.

This is just one scenario.

Timing is going to be critical here especially with Powell speaking in front of Congress today and Friday being a Jobs Report.

I have a short term Panic Cycle that could start at any time but ideally on Friday or Monday.

If the market rallies on the jobs numbers Friday, I think it will offer a good shorting opportunity.

The chart below shows why a further break followed by a return rally puts the market on a precarious perch.

I want to draw your attention to the proprietary RSI in the bottom panel.

Notice the similarity of the RSI now to the pattern at the early 2020 pre-crash highs.

In 2020 the RSI dropped below the upper green line and bounce back to it in a secondary peak.

Ideally the market will drop further in coming hours/days with the RSI breaking the top green horizontal line.

My expectation is this will occur into the Ides Of March OpEx.

If so then the market will turn back up…potentially in a stunningly sharp rally creating a divergent pattern in the RSI which will make a lower low as  the SPX spikes to new highs.

This scenario is contingent upon what happened from here into March 15th.

It is possible that we have already seen a major top.

But cycles suggest after this correction is over we could see a last ditch run for the roses…depending on how low this correction goes. Breakage below 4900 dwarfs the odds of a new high playing out.

The DJIA is already sporting a yellow caution flag having triggered a short term Angular Rule Of 4 sell on Tuesday…a drop below a 3 point trend line.

If this is a shakeout rally pulling the rubber band back before a last ditch run, then it will be easy to tell: the broken trend line will be reclaimed on the way to carving out a new high.

The QQQ  flirted with a failure below a trend line from the October low on two instances in February. Each time the trend line was recaptured.

Drilling down, the Q’s had a large range breakout on Friday. Tuesday’s sell-off wiped out the breakout point and then some. A warning.

A short term trend line (green) connects those two February breaks.

Tuesday both trend lines were violated with authority.

What potentially seals the deal for a top is Friday’s surge that has been quickly reversed.

90 degrees down from the Q’s 446/447 high on Friday is 426.

Theoretically that would be the ideal low for this move if a Jackkinfe higher is going to play out.

Back in early December I wrote that after a basing period the market would take off in January with a series of pops and drops lasting into the spring.

Clearly we’re seeing that exemplified in the action in in several generals in the software group in ZS, CRWD and CYBR,

AAPL has been MIA and is a T Rex in the bull ointment in this disconnected market.

AAPL left a Bottoming Tail on Friday, a Lizard buy signal. Tuesday’s gap below the bottom of the ‘tail’

Sealed the deal for a waterfall move perpetuated by a Power Surge sell setup (a 3rd lower high from the December 2023 high as well as a Rule of 4 Sell signal triggered on trade below 179.50.

The Bell Weather has become an albatross around the market’s neck.

A monthly AAPL reveals a bearish development.

AAPL turned its 3 Month Chart down in October which defined a low.

Bullish price action which perpetuated a new high.

That new high in December 2024 turned the 3 Month Chart back up because it eclipsed the prior circled 3 Month Chart high.

However, AAPL rolled over turning its 3 Month Chart back down once again.

This time the turn down elicited accelerated downside momentum.

360 degrees down from AAPL’s 200 high is 147.

147 is meaningfully below AAPL’s October 2023 low.

Notice how both vibrate off the October low.

If AAPL can relinquish its October low, can the market avoid ultimately following?

In sum, markets picked up Tuesday right where they had finished Monday with significant selling at the open following Monday’s Lizard sell signal.

The follow thru included:

A decisive Breakaway Gap for the SPX and the NAZ

The NYMO falling below zero

The NAMO (NAZ McClellan Oscillator) falling below zero.

Turndowns in the NYSE Summation Index and the NAZ Summation Index.

Looking back at the past 100 years most major declines began with either the FIRST or the SECOND downturn of the Summation Index.

What is remarkable about this year, 2024, is that this time the Summation Index has turned down not one or two times, but SEVEN times.

It has taken seven downturns just as it has taken over two years for this top to complete.

Seven is the number of completion. It is the fatal number.

I think the implication is that  this is a more significant top, a higher degree top, a Super Cycle Top.

In the same vein, it is equally possible that a further spasm of buying is seen prior to the final top.

It is possible that we get a climatic Throw-Over above the Tops Line show above in the monthly SPX.