By: Jeff Cooper

Hit and Run Trading Morning Report - May 28, 2024

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The Mother Of Trap Doors?

“Don’t you know you know the deuce is still wild.”
-The Rolling Stones, Tumblin’ Dice  

“A market does not culminate in one grand blaze of glory. Neither does it end with a sudden reversal of form. A market can and does often cease to be a bull market long before prices generally begin to break.” -Jesse Livermore

As a friend and fellow trader likes to say, “hunting the big moves in the market is like listening for the tumblers of an 8 number lock.”

Allow me to give you an example of the famous top in 2007 prior to the last great bear market.

Below is a daily SPX showing the top in 2007 and the ensuing bear market throughout 2008 into March 2009.

Notice there was an initial top or Primary Top in July 2007 from which a quick, sharp decline played out. It was followed by a nominal new high on October 11, 2007…a false breakout, a Pinocchio that turned into aTrap Door.

The SPX traced out a Key Reversal Day on October 11, 2007. It set a new 52 week high with a close below the prior day’s low.

Even so, the market did not follow thru to the downside the next day, Friday, October 12.
The next trading day, Monday, October 15th got the downside ball rolling.

It took two plus months from July 19 to October 11, 2007 for the top in 2007 to work itself out.

Jesse Livermore stated “Big movements take time to develop.”

In fact the SPX 1555 high on July 19,  2007  Pinocchio’d the prior all time record high from March 2000 by all of 3 points.

The October 2007 crest bettered the March 2000 high by 21 points or about 1  ½%.

On Thursday the SPX reversed from a new record high approximately 1 ½% above the March high.

On Thursday, May 23rd, 2024, the SPX left a Key Reversal Day.

Like, Friday, October 12, 2007, we did not follow thru to the downside from Thursday’s Key Reversal Day immediately; it is to be determined if selling resumes today, Tuesday.

But the analogue is interesting because as in 2007, the SPX shows a potentially similar pattern of an initial Primary Top in March with a possible Secondary High 2 months later.

In 2008 the SPX made a further Secondary High in the third week of May that preceded a crash.

The crash culminated 180 degrees/days later on November 21st, 2008.

That was the Primary Bottom.

The March 2009 low was an Undercut Low, a Trap Door low.

As above, so below.

While the Undercut of the November ’08 low  was deep percentage wise (75 points below the 741 November low), it was brief; it only spiked below the November low for 6 days, reclaiming the prior November ’08 low just 10 days after breakage below it.

Let’s turn to the current market.

We got a Primary Low on  June 2022 with a Secondary Trap Door Undercut Low on October 2022.

W.D. Gann wrote that “if you can find the ‘zero point’, anything can be measured.”

This is true for where you start your trend lines, your time counts and where you measure from on the Square of 9 Wheel.

Measuring from a PRIMARY PIVOT is logical.

I drew a trend line from the June 2022 low thru the July 2023 high.

Notice the pivots that tie to this trend line (top blue line).

Notice that this Tops Line tags the March 2024 peak.

Is it possible that is/was an initial peak, a Primary High?

I believe so. If that is the case we are making a Secondary High here in May--- a possible Trap Door high ala the October 2007 marginal new high.

I paralleled a line off the Tops Line from the important October 2023 low. It ties to 4700 which represents an undercut of the 200 day moving average.

Notice how a mid-channel line proves the geometry of the Primary Low in June as it catches  the lows following the October 2022 low and most importantly defines the April 19, 2024 low.

Thursday’s Key Reversal Day probed below the prior March 5265 high but held it on the close.

Friday Mr. Market shrugged off Thursday’s Key Reversal preferring to assume the prior March high had been successfully tested.

This week we will see if it’s a case of the first mouse gets the squeeze and the second mouse gets the cheese.

In other words was Friday a “squeeze” following the first sell signal…the Key Reversal?

If so the next time down thru the 5265 March SPX high the second mouse will get the Bear Cheese.

If the SPX stinks up the place with a knife below 5265 this week, it will be important to observe how quickly the index drops below the mid-channel line currently around 5050.

Breakage below 5050 opens the door to a failure below the 4950 April 19 low.

The presumption is breakage below the 50 day line currently at 5173 will perpetuate a drive to the 200 day moving average currently at 4757.

If that plays out, it will be critical to gauge the velocity of the drop to the 200 dma.

In other words how long does such a drop take.

A violent drop to the 200 day is a blaring siren that the Mother of Trap Doors has been sprung…ala 2007’s kick off to the 2008 debacle.

2008 is 4 squared years before 2024. So we are at  a natural square-out in years with the May 2008 pre-crash high. It will be interesting to see what plays out in November with a contentious election on deck.

Checking my Time/Price Calculator shows that using the year “2008” as an anchor, we get June 9th straight across and opposite 180 degrees.

That is interesting because June 9th aligns with the 666.76 Bear Market low from 2009.

As well, June 9th and 2008, square-out with 9/11 and December 7th, Pearl Harbor and ties to D-Day, June 6th.

Maybe something, maybe nothing but 476 (4760) where the 200 day ma resides currently, aligns with June 9th.

Is it possible the SPX drops 550 points or 10% in a couple of weeks?

The answer is yes it is possible. Of course anything is possible in markets.

The point is there are many time factors and price factors that suggest it may be probable.

The Hindenburg Omen is a technical indicator that often foreshadows a looming  stock market crash. It compares the percentage of new 52 week highs and lows looking for a deviation from what would be normal.

In addition to Thursday’s Key Reversal, the market generated a first Hindenburg Omen observation.

These are rare birds. A second observation over the next 30 days meets the requirements for an official Hindenburg Omen potential crash signal.

There has not been a crash over the past 40 years unless there has been an official Hindenburg Omen present.

All stock market crashes since 1986 have occurred with an official Hindenburg omen on the clock.
However not all H.O.’s produce crashes.
However, given the weight of evidence of cycles clustering along with Time/Price square-outs, any top could unleash intense selling.

Checking The Truth Teller, IWM, shows a major divergence with the SPX.

IWM struck a high for the year on March 28th. The SPX struck a new high on Thursday May 23rd.

Indeed a two and a half year divergence exists between the IWM all-time high from November 28, 2021 and last week.

IWM broke a Bottoms Line (blue) on Thursday and backtested it Friday.

The Snapback came from a secondary Bottoms line (red) coincident with the 50 day moving average.

Breakage below the 50 day ma opens the door to the Neck Line of a Head and Shoulders Top and the 200 day ma around 190.

Tomorrow’s report will take a deep dive on our forecast for IWM and its “Uncle Point” where prices tumble in earnest.

It’s a barn burner.

Despite Thursday’s Key Reversal Day, Hit and Run’s approach is to take long-side plays as long as the setups present…especially given the understanding that initial sell signals often see sharp rallies as the “first mouse” gets squeezed.

Let’s take a look at some textbook Hit and Run plays from Friday.

Hit and Run alerted a long swing in GEV at 161.60 just before Thursday’s close  on the Private Twitter Feed.

Despite closing on session lows GEV was testing its 20 day moving average (Holy Grail buy setup) and tracing out a Bull Flag with a conspicuous Rule of 4 Breakout looming (a breakout over a 3 point trend line).

Here’s what GEV did on Friday.

GEV rocketed from the get-go on Friday, triggering an upside ORB (Opening Range Breakout above its first half hour high).

This perpetuated a drive over the 170 high of Thursday’s reversal triggering a Keyser Soze buy signal…a Reversal of a Reversal.

As well when the 170 strike was eclipsed it OpEx Pinball was in play which saw a run to the 175 strike within the next hour.

MOD was flagged as an bullish Earnings Reversal on Wednesday as 180 degrees down from the 109 high was the 89 gap open.

When MOD recaptured 89 in the first few minutes Wednesday it was in a strong position telegraphing a drive to the 105 strike for Friday’s OpEx.

Hit and Run used it as a long setup for Friday based on the backtest of the 50 day moving average near the 95 strike looking for OpEx Pinball to 100…clearing that opening the door to 105.

In sum, the beauty of my Hit and Run Methodology, is that, regardless of what the primary trend is, our setups capitalize both ways, long and short, as some of the sharpest gains come on Squeeze Plays in the midst of bear phases and some of the steepest tumbles come in the midst of Shakeouts in bull phases.