By: Jeff Cooper

Hit and Run Trading Morning Report - May 17, 2024

The Gann Panic Zone

The SPX rallied 6.86% over 19 days from its recent -5.46% low.

When gaps and volume occur into or out of a market low, there is a strong likelihood of a bullish change in trend

When indices strike new 52 week highs and especially all-time highs on upside gaps and heavy volume and a long and persistent advance, it suggest a Buying Climax and final capitulation…a capitulation amongst those who are bullish but underweight and by those who are bearish.

When this occurs into a cycle turn week, such as I see for this week,  it adds to the probability of a top.

The velocity of a reversal from such a top has a lot to say about the kind of top.

Fast moves come from false moves, but if the  ensuing advance has been sustained and vertical such as the advance off the late October 2023 lows, the swiftness of the decline can be dramatic.

There were technical reasons for the rally off the April 19th SPX low:

1) The SPX satisfied a 360 degree decline from the 5264 high.

2) the index also tagged its 20 week moving average for the first time since the advance off the October low.

3) The 5 day rate of decline in the NAZ was largest in a year.

Long time readers know that one of my market maxims is that after a flush-out if an item reclaims more than 50% of the range of the prior decline, it often opens the door for a move all the way back to the prior highs.

When the SPX gaped above its 20 day moving average on May 3rd it recaptured a 50% the 50% retrace region which was 5109 as it closed at 5127 on May 3rd. That signal was  followed immediately by a second  gap reclaiming its 50 day line.

Wednesday we got another gap on the CPI completing what the bulls hope is a “third time is a charm” series of gaps as the SPX drove above its March high to a new record .

Thursday the SPX probed close to the 5330 region we flagged in the morning report, before relinquishing gains and getting hit on the runoff to close at session lows.

The SPX left a stealth signal reversal bar from an all-time new high.

Nothing to write home about---yet.

However as posted on the Hit and Run Private Twitter Feed mid-day Thursday:
The SPX shows an outside up hourly bar this morning; defense goes on the field if---

1) the bottom of this bar gets taken out (5306)

2) my hourly Pocket Pivot Indicator gets broken (also at 5306 currently)

3) below that is the 20 hour ma residing at 5297.

Here’s what happened.

The SPX broke below the hourly outside up bar triggering a little Reversal of a Reversal on trade below 5306 dropping to the 20 hour and closing at 5297 on the run off.

We went on to alert:  breakage below the little triple hourly highs from May 10 -14 at 5240 that tie to the 50 hour moving average is a blaring sell siren. Why? Because on the way to breaking this well-defined short term support, the SPX must drop below the all-time high from March at 5264.

In sum a reversal back below the March high and Wednesday’s open gap is a strong indication that we got a false breakout on Wednesday.

Fast moves come from false moves so if this should play out over coming hours/days I would not be buying dips as initial support may be a 20/50 moving average Bowtie at the 5150 region.

In other words we could see a quick 100 point SPX air pocket if we Jackknife back below the March highs.

We have been focused on this week and May 17th for some time.

Now that we’re here let’s recap some of the reasons.

W.D. Gann had what he called a Death Zone or Panic Zone starting 49 days from a high and running to around 56 days.

For example, the crash in 1929 began roughly 49 days from the September 3rd high.

October 22 is 49 calendar days from September 3rd.

The stock market crashed on October 24, October, 28th and October 29th, 1929.

Notice on my Square of 9 Wheel the red line denoting Gann’s panic window.

Theoretically the crescendo is supposed to be over at the end of the red line.
which ties to 7 squared days from a high, 7 being the number of time and panic.

But the market isn’t a Rolex.

And the picture that the market paints is often more like a Picasso than a Rembrandt.

In 1929 the Big Kahuna hit 5 days from the end of the window, the red line.

In 1987 the pre-crash high was August 25th.

The “red line” ended on FRIDAY, October 16, 1987.

The crash hit 3  calendar days later and 1 trading day later on October 19th, Black Monday.

Theoretically, the pattern is not supposed to see a new high prior to the crash.

However, there are exceptions.

2020 was such an exception. There was an initial high on  January 22 and a false new high on February 19th.

The bottom of the crash was on March 23rd.

The low day, March 23rd, was 9 calendar days from the orthodox January 22nd high.

Measuring from the March 28, 2024 high, panic should unleash, IF IT IS GOING TO, starting the 17th or 18th.

Since the 18th is a Saturday, that makes Monday, May 20th critical.

Interestingly, Friday October 16th, 1987 was a monthly OpEx prior to Black Monday and today is a monthly OpEx.

Just sayin’.

On the Square of 9, the  year 1929 points to May 18.

Obviously, we had 94 May 18th’s since the October 1929 crash.

So why is this one pertinent?

This October will be 95 years since October 1929.

On the Square of 9 Wheel, 95 squares out with March 28th, the initial SPX high this year.

As flagged throughout this month, the next few days are also critical because of time price square-outs.

This advance started from an October 27th, 2023 low.

October 27 points to 533 (5330)---Thursday’s high, rounding.

So the time of the low is pointing to Thursday’s high.

The prior high of 5265 (525) points to today, May 17th.

The prior prior high, the January 4, 2022 high of 4818 (481) points to May 17-19.

The DJIA eclipsed 40,000 for the first time in history yesterday.

It tailed off to close on session lows leaving a Topping Tail reversal bar.

It actually closed below the prior swing high from March 21st.
Downside follow thru is bearish.

The DJIA bottom last October at 32,327.

Moving the decimal point to work with the Square of 9 we get 323.

36t0 degrees up from 323 is 400 or 40,000.

They “point to” this week.

Today is the biggest OpEx in history.

If Wednesday was a Miss Direction Day to in front of today’s expiration, it should be easy to see on the tape in the first hour.

There are several “tells on the tape” that suggest Wednesday was a false breakout.

Homebuilders such as DHI and LEN exploded on Wednesday and caved in yesterday.

META shows a Breakaway Gap below the Neck Line of a Head and Shoulders top.

It backtested Phil D Gap and its declining 50 day line on Wednesday and gaped down yesterday despite a strong market in the early going.

AMAT “broke out” on Wednesday and left a Gilligan sell signal yesterday.

Our old friend MOD which has been one of our go-to names triggered a Soup Nazi sell signal yesterday as well as a Jump The Creek sell signal (offsetting Wednesday’s up-gap).

AMD reversed with authority from a Time/Price square-out: 167.50 squares out with May 16th.

The Truth Teller is perched on an hourly trend line from May 1st that dove tails with its 20 hour moving average.

Downside follow thru below Wednesdays open gap at 207.20 is the Sign Of the Bear.

Breakage below the 50 hour moving average at 206…get out of Dodge.

Heads up for a possible Spike & Reversal.