By: Jeff Cooper

Hit and Run Trading Morning Report - March 18, 2024

A Technical Trifecta Marks A Critical Week

“The trick you said was never play the game too long.”
-Still The Same, Bob Seger

Based on the weekly Investors Intelligence Survey, the last time we saw this kind of total absence of bearish advisors versus committed bulls (those who think unequivocally the market is heading higher) was six years ago in January/February 2018.

Following an historic runaway  5 month move from August 2017 the SPX saw what I believe is the least volatile period in history. Until it wasn’t.

The Reversion To The Mean decline kicked off with a 12% drop in just 9 trading days.
Today that works out to a 611 point drop taking the SPX down to 4504 region.
Just to put that in perspective the SPX 200 day moving average is at 4576.

Peoples hair would be on fire.
The last time we were at the 200 day moving average was…yep…in October 2023 when the SPX bottomed on an undercut of the 200 dma.

Impossible to drop there quickly?

Noting is impossible in the markets. Anything is possible. That’s why I bring this up.

Especially in as much as vertical Runaway Moves like we’ve been in  last October often revisit their point of origin when they bust.

Notice that a trend line from the Oct 27, 2023 low was broken late last week.

If the SXP quickly reclaims that trend line, a strong rally should ensue.

The question is whether this vertical move goes asymptotic, parabolic before it climaxes.

Underpinning the nature of this Runaway Move is that the SPX has turned its Weekly Swing Chart down only twice since the Oct 2023 low.

The first instance was the first week of January.

The second was the first week of March when the weeklies turned down by less than 1 point.

Both turndowns defined immediate lows in keeping with the persistence of the Runaway Move.

There are two ways to disabuse players of an extreme bullish posture…

By a sharp downdraft or by a choppy sideways stint.

Overbought extremes can be walked off in price by sell-offs or in time by a sideways move.

So what’s happened in the last two weeks.

On Friday March 1st, the SPX closed at 5137.
Ten trading days later on March 15th the SPX closed at 5117, virtually at the same level.

This is despite closing DOWN 7 out of those 10 days.

This is because there were 2 big up days in the mix…March 7th and March 12th.

To say we’ve had a tight choppy environment in March is an understatement.

The whippy tape within the context of an overall uptrend is exemplified by MSFT.

On Thursday MSFT had a large range Rule Of 4 Breakout to a record high.

On Friday MSFT gapped down closed below the breakout pivot.

Arguably, MSFT staged a false breakout on Friday Feb 9th as well leaving bearish Train Tracks.

A large Breakaway Gap followed.

While it looked like a top was installed, MSFT recovered after a month of chop where it challenged its 50 day line.

Clearly MSFT could recover its footing again but it must be noted that Thursday’s /Friday’s false breakout may be a Test Failure of the Feb high.

Indeed checking the weeklies shows a weekly Soup Nazi sell as MSFT knifed back below early Feb high.

The October 2022 low was 213/214.

3 revolutions of 360 degrees up from 214 is 425.

Notably the September 2023 309/310 low is opposite 214/215.

With many big caps like MSFT, AMZN and GOOG reversing Thursday’s strength on Friday where does that leave the SPX?

First of all we have to remember that Friday was a monthly OpEx.

The Option Tail wags the Stock Dog.

The daily SX is in the +1/-2 buy position as it shows two lower daily lows with the 3 Day Chart pointing up.

The SPX 3 Day Chart has turned down only ONCE since the October 2023 low…on January 3rd.

It went a tad lower the next two days and then rocketed higher.

I bring this up because a lower low below Friday’s low today will turn the SPX 3 Day Chart down.

The ensuing behavior if that occurs will be important.

That’s one reason why this week will be critical.

A short term Bottoms Line shows the SPX is perched on a 3 point trend line as well.

So the 3 Day Chart could turn down in tandem with a test of a two month trend line.

As well the SPX is testing its rising 20 day moving average for a possible Holy Grail buy signal.

We have a Technical Trifecta on the table.

The SPX tested its 20 dma on Feb 20 in combo with a +1/-2 buy signal and exploded higher.

It undercut its 0 dma on Jan 17th in combo with a +1/-2 buy signal and ripped higher.

The solitary turn down of the 3 Day Chart in early January also tied to a test of the 20 day moving average and the market surged higher.

This is a critical week.

If we’re going to get the ‘natural progression’ of a champagne cork run ala 1929, 2000, February 2020, and 2007, this should be the week it starts. Full stop.

I counted trading days into the cherry on top runs of last ditch runs and it needs to start this week or there is a strong likelihood it does not.

My expectation is that we do get a Buying Climax.

While we did not shake out as I thought pulling the rubber band back for a last ditch rally, as offered above, the market can walk off extremes with choppy sideways action.

Recent price action has many thinking the market is set to rollover right here.

The chart below shows an indicator measuring an extreme in risk.

However note that at overbought extreme in late 2021 the market pushed higher producing a divergence with the indicator.

Notice at the important July 2023 peak the indicator was at an extreme and turned down while the SPX drove higher.

My point is simply this: not all tops are created equal. If we have the potential for a Super Cycle Top here (which I believe is possible) then the presumption is we will not end with a whimper, but a bang.

In sum, clearing the SPX all time high from March 8th, opens the door for accelerated momentum.

Tomorrow’s report will expand upon the time and price factors that validate this notion.

For now, suffice to say that clearing and sustaining above the March 8 large range Key Reversal Day triggers a Keyser Soze buy signal---a Reversal Of A Reversal.

That’s a start.

One last reason for the potential for champagne: