“If you start me up I’ll never stop.” – The Rolling Stones, Start Me Up
Thursday’s rally faded from a backtest of the SPX 50 hour moving average where we suggested members on the Hit & Run private Twitter feed add to their long VXX call positions, the first tranche initiated on Tuesday.
With Thursday’s rally evaporating, the presumption was an A B C Measured Move decline to 3692 was on the table as depicted in the following hourly SPX from Friday morning’s report.
We showed the following hourly SPX in Friday morning's Hit & Run Report.
In fact, the index struck a low of 3694 on Friday before bouncing to close right on its 50 day moving average at 3714.
Since my Time/Price square-out at 385/386 SPY (3860 SPX) for the last week in January, the index is down 4.6%.
To recap, we have projected a turning point from this region last week based on 385/386 being 180 degrees, straight across and opposite last week.
That the SPY resonates on the Gann 90 year cycle (+ or -) with the 386 high in 1929 and we have seen an air pocket off that level warrants caution.
Wednesday’s breakaway gap validated this square-out of time and price.
A daily SPX from the September 4 peak shows Friday was the first time the SPX has visited its 50 day line in 3 months.
Sunday, the futes were down a quick 45 points. As I write this on Sunday night, they have turned green.
It would not be surprising to see a rally attempt in the aftermath of the index satisfying the hourly Measured Move with stops getting taken out overnight on Sunday.
Be that as it may, the above daily SPX shows technical damage was done Friday with breakage below a 3 month trend channel (red).
Theoretically, we could get a backtest of this channel in the 3760-65 region.
As long as this resistance holds, my expectation is for lower prices.
I drew a close only trend channel (blue) connecting the September high and the January highs.
I then paralleled a trendline off the September closing lows.
The bottom rail of this trend channel is around 3500.
What’s interesting is that the 540 degrees down from the all time 3870 high is 3505.
A drop to this level would create a 3rd bottom on this trend channel.
Before that can happen however, 3652 must buckle.
That is because 3662 is 360 degrees down from high.
Pulling back the lens to check a weekly SPX shows the last two corrections (last fall) tested the 20 week moving average.
With last week's Key Reversal Week (a new one year high with a close below the prior week's low) the presumption is the 20 week moving average, at least, will be tested again.
Notice that the large range outside down signal bar reversal week from early September perpetuated a test of the 20 week moving average.
Without an intervening new high, another test of the 20 week m.a. installed a double bottom.
Each reaction saw two to 3 weeks of decline.
The inference is that last week's large range outside down week opens the door to a 3rd test of the rising 20 week m.a., now at 3581.
If this plays out, there is some good symmetry as the September peak was 3588.
Prior resistance SHOULD become new support. If not, it opens the door to the bottom of a weekly trend channel in the 3450 region.
Last week's Key Reversal week was a rare bird. It was the first such Key Reversal Week since August 2017, when the market was in the midst of a runaway move.
The takeaway is a minimum 2 to 3 week correction.
Moreover, on the above weekly chart I connected the September 2018 top with the February 2020 top and the September 2020 high.
The SPX broke out above this trendline but is flirting with breakage back below it right here.
Failure below this near 2 ½ year trendline reeks of a false breakout Bull Trap.
As well, the first week of the year the SPX carved out an outside up week.
Breakage below that week's low (3662) leaves a WEEKLY Reversal of a Reversal.
This is what I call Keyser Soze because it is often a diabolical event with false moves leading to fast moves.
Above, I stated that 360 degrees down from high is also 3662.
So 3663 is the Maginot Line.
Breakage below 3662 and this Keyser Soze sell signal could see accelerated momentum to the downside.
In sum, the decline is being driven by forced liquidation by hedge funds to cover shorts such as GME who must sell what they don’t necessarily want to.
A cadre of retail Wallstreet Bets “kids” has resulted in hedgies taking it in the shorts and forcing grown men to cry.
If the losers cannot pay, the broker dealers are on the hook and if they cannot pay, the clearing houses must pay. This counter party risk raises the specter of contagion.
What we have is the convergence of the power of social media with speed of financial technology along with the karma of Central Bank suppression of interest rates where Main Street can’t get a return on savings.
The suppression of interest rates has gone hand in glove with a suppression of gold and silver, which calls B.S. on fiat money.
Enter millions of Wallstreet Bets kids who put a match to suppressed/heavily shorted stocks.
Mean Streets meet Wall Street.
The next target is apparently one of the most heavily shorted items in the world, silver.
There is only one item more heavily shorted, VIX.
If these two explode anything near what GME did, it could be the point of no return.
