Bonds Bite Stocks. Bear Bites Bull.


“Those who jump to conclusions may go wrong.” – Sophocles, Oedipus Rex

“Tuesday morning wasn’t just a dip, it was an abyss. Cycles suggest more volatility to come. You ain’t seen nothin’ yet.”

We wrote the above in Wednesday morning’s Hit & Run Report.

QQQ, where the growth glamours we traffic in reside, led blow-off from early November.

It embodies speculative sentiment, which at the end of the day drives the market.

It is leading the way down.

This is where we go to glean the Line of Least Resistance.

The following daily shows it gapped below its 20 day moving on Monday in the aftermath of a Gilligan sell signal on February 16.

A Gilligan sell signal is a gap to a new 60 day high with a close at/near session lows.

I created the strategy in the 1990s to define exhaustion.

Not all Gilligans are major highs, but many major highs are Gilligans.

Monday’s gap below the 20 day moving average perpetuated Moving Average Pinball with a gap below the 40 day line on Tuesday.

This was the first breach of the 50 day line since the November low.

As such, it was not a surprise to us that we got a rally attempt.

However, all that rally attempt did is turn the Daily Swing Chart up. That the turn up lasted one day is a bearish event.

However, Humpty Dumpty doesn’t get put back together in one day.

The tech wreckage directly off the highs signaled more carnage to come.

Why? Because the Q’s violated a 3 point rising trendline from December. This triggered my Rule of 4 Sell signal.

In the aftermath of Wednesday’s “rebound” while many technicians were extolling virtue of another Buy The Dip opportunity and pounding the table that it clearly pointed to immediate new highs to 4100, 4300 or even 5,000 SPX, at Hit & Run we were shorting.

QQQ lost its 50 day line again in short order on Thursday, eliciting a waterfall decline and a decisive close below its 50 day moving average.

Thursday was the first close below the 50 day moving average since November.

You can have whatever opinion you want about whether this is just another shakeout and whether it is a buying opportunity, but the Line of Least Resistance looks like it has a date with destiny near the 303-305 region on the Q’s.

Allow me to explain.

On the above chart, I took the internal high in mid-October and connected it to the January and February highs.

I then paralleled that trendline off the late October low where a runaway move started.

This gives us a trend channel with a lower rail at 303-305.

Importantly, the September peak was 303.50, which was followed by a waterfall decline of 43 points in the Q’s.

A similar 43 point decline off the high gives 295, which ties to the aforesaid 303 region.

Breakage below 295 will overbalance the prior largest decline since the March 2020 low, indicating a strong likelihood that a major high is in. Potentially the high for the year.

Checking my Square of 9 Time & Price Calculator shows that 180 degrees down from the 338 all-time high is 302.

Red is 338
Blue is 320
Green is 302

90 degrees down from 338 is 320. Yesterday the Q’s closed decisively below 320, implying the next 90 degree decrement at 302 is on the table.

I have been using the Square of 9 Wheel for 30 years and have proven to myself without reservation that markets play out in 90 degree decrements.

This is the true logarithm of the market.

Because the Q’s have moved below 90 degrees, it signals a 180 degree move to the 302 region.

Conclusion. We have a trifecta of technical in the low 300 QQQ region:

1) The bottom rail of a trend channel

2) The September high — prior resistance “should” act as new support (at least the first time around.)

3) Most importantly — the Square of 9 points to 180 degrees down at 303.

Here’s the set up:

Early March is 180 degrees/days from the September peak.

180 degrees down in price gives 303.

If the setup snaps, it opens the door to the 200 day moving average around 280.

In sum, in the aftermath of Wednesday’s “rebound” while many technicians were extolling the virtue of another Buy the Dip opportunity and pounding the table that it clearly pointed to immediate new highs to 4100, 4300 or even 5,000 SPX, at Hit & Run we were shorting.

Of course at important tops, you always get calls for “one more good high.” It’s a Cheech & Chong Market.

Tweets from the Hit and Run private Twitter feed:

Leave a Comment: