By: Jeff Cooper

Hit and Run Trading Morning Report - March 12, 2024

Tops: How To Determine The Line Of Least Resistance

Many significant tops are defined by signal reversal bars…Topping Tails or Gilligan’s (gaps up to new 60 day highs with a close at/near session lows and Key Reversal Days.

Let’s take a look at some of the big tops this century in the leading NDX.

NDX left a Key Reversal in late January 2000.

It also produced a Soup Nazi Sell signal.

The A B C decline elicited another leg up in February.

In early March a little Lizard sell signal produced a sharp downdraft that bottomed when the 3 Day Chart turned down.
The ensuing rally left a larger Lizard sell signal on the day of THE top in synch with the 3 Day Chart turning back up.

The immediate turn down of the 3 Day Chart off the March 24 all-time high was the Sign Of the Bear (SOB).

There are several takeaways from the work-out of the 2000 top:

1)      NDX mirrored the A B C correction at the January highs in March. This identical to what happened in October 1987 pre-crash. The SPX carved out an a corrective A B C pattern in May at the launching pad to the blow-off into the late August 1987  top. That same pattern was repeated in October prior to the crash. Needless to say the mirror broke. Just as it did in after the March 24, 2000 “mirror image”.

2)      Rapid flipping of the 3 Day Chart up and down is indicative of a trend change, be it at a bottom or top. Rapid flipping of the 3 Day Chart is consistent with an expansion of volatility: Volatility Precedes Price.

3)      Markets like to test. For example the test of the highs in January 2000 was successful. In March the SPX carved out a Test Failure. In other words it is the complexion of a market as to whether a test is successful or a failure that telegraphs the nature of the trend.

These three factors do a good job of revealing The Line of Least Resistance.

The missing ingredient in the above is the Time Factor.

Notably it was just over 5 months from the important October 1999 low to the late March  2000 top.

Late March/early April 2024 is 5 months from the October 2023 low.

In 2008 NDX left a Key Reversal Day in October .

It did not produced a downtrend immediately.

While it subdued momentum, it produced a Megaphone.

When the NDX attempted to come out of the consolidation it late October, it was Oingo Boingo—a dead man’s party.

When the NDX (typo on chart not SPX) broke below the breakout pivot, the top was in.

Following a sharp 3 week downdraft into the end of November 2008, NDX carved out a deadly 1 2 3 Swing To A Test pattern.

Go back and look at the weeklies into the late August 2000 Secondary High and you will see the same 1 2 3 Swing To A Test of that years March high.

Tops take TIME. Time Turns Trend.

The takeaway: while last Friday’s Key Reversal Day in the SPX and NDX may be an important marker, it may be just a signpost on the Road To Perdition.

Let’s take a look at the Christmas Crash  in 2018.

NDX left a Topping Tail (Lizard) sell signal in late August 2018.

Following a turn down of the key 3 Day Chart the NDX walked back up to test the highs.

The test left a Gilligan sell signal.

Notably the NDX didn’t cave in  or panic right after the Gilligan sell signal

It traded sideways for two days.

Time on the Side, lost motion.

However, a Breakout Gap in early October cast the die turning the 3 Day Chart down IMMEDIATELY OFF THE HIGH.

In my experience when the 3 Day Chart turns down immediately off a fresh high with authority and does not define a low, it is the Sign Of the Bear as well.

Notice how the waterfall phase of the downtrend into X-Mas followed a 3rd lower high.

This is my Power Surge pattern.

Markets do play out in three’s.

Why do I bring up October/December 2018?

Well in addition to the pattern which telegraphs a crash, it is 66 months from October 2018 to April 2024.

66 months is a fractal of the 666 SPX price low in 2009.

On Friday the NDX carved out a Key Reversal Day.

It occurred as NDX tested the top of a trend channel.

Notice 3 drives to the top of the channel.

As W D Gann wrote markets play out in 3 sections….sometimes 4.

Yesterday shapes up as a Pause Day.
Why? Because NDX snapped the magenta Ghost Line on March 5th and last Friday’s attempt to recapture it failed…at least for the moment.

I think there is a strong likelihood that the red parallel TL is tested at the 17,600 region.

Breakage below that opens the door to the bottom of the lower rail of the trend channel (blue).

If this plays out, cycles suggest we may see one further rally. If that rally takes out the magenta Ghost Line and the top of the trend channel (black) we could get a Buying Climax run.

Let’s check out a big picture SPX.

I think there is good reason to consider that the orthodox top of the market was late 2021/early 2022 for an number of reasons:

Breadth, the A/D Line, IPO party, SPAC frenzy, Meme Stocks…to mention a few.

That opens the door to the possibility that the decline from the January 2022 top to October 2022 was an A Wave decline.

If so the SPX could be carving out a B wave rally.

B Waves can go higher than the orthodox top.

This occurred in 2007 when the SPX eclipsed the March 2000 peak prior to a devastating C Wave Crash in 2008.

For the moment, I’m leaving the door open to the possibility that when the pullback we are in culminates, we could see an Overthrow of the trend channel mirroring the Undercut in October 2023.

Whether that plays our or not, when the bottom of the black trend channel caves, the C Wave decline will be in full swing.

I think that C Wave may see a crash to the 3200 region.

In sum, drilling down to the short term shows the SPX is in the Plus One/Minus Two buy POSITION.

However, all trading is contextual and this setup is within the context of Friday’s Key Reversal Day.

I think it more likely the rally attempt yesterday and pre-market as I write this morning falters.

I think there is a strong likelihood the SPX kisses the bottom of the blue trend channel around 5050.

We know that 90 degrees down from Friday’s high is 5076.

Breakage back below 5076 opens the door to a drop to 18i0 degrees down at 5045.

Interestingly, the bottom of the blue trend channel ties to 5050.

Authoritative trade below 5045 opens the door to a drop to the 4930 region where the 50 day moving average ties to the red parallel trend line.

This also dovetails with a 270 degree decline off Friday’s high which is 4974.

Below the 50 day line, we’re going downtown.

A lot is riding on this morning’s CPI number.

Recently the market has been shrugging off the well-diminished notion of 6 to 7 rate cuts this year.
Today the market may have to discount the possibility that there may be no rate cuts in 2024.

That is until the plug is pulled on the economy and rates must get cut for the wrong reasons.

The Fed is in a box. They may want to lower rates to accommodate U.S. Treasury borrowing, but at the same time higher rates may be necessary to attract buyers of our debt.

One thing we can be sure of with this riddle wrapped in a mystery inside an enigma we call the market is that The News Breaks With The Cycles.