On Wednesday, in the midst of an echo of FOMO, we warned that the market had not seen real fear and that a Killer Wave was on deck.
We followed up stating that a failure of the 220 point SPX rally off last week’s lows could trigger the kind of fear needed to open the door to an intermediate term low.
Yesterday’s compared where the market was now to early March 2020, noting that “if the rally into Wednesday failed, pure panic could take hold.”
What this slow motion crash has been missing is panic. Put/Call Rations and VIX & Co have not reached levels associated with all intermediate term bottoms.
My inbox continues to be stuffed with emails asking “Is The Bottom In?”
Until we stop getting these emails, the answer is probably no.
One reason we have not seen real panic yet is market participants have been conditioned to buy the dip for 13 years.
They have seen that even a real crash coupled with a pandemic can be dwarfed by a subsequent rally.
They have “learned” that hedging their portfolios by buying puts has been a “waste.”
When real fear generates high put levels forcing dealers to sell the underlying stock, it is typically in Capitulation Country.
Many measures of investor high anxiety have not registered pure panic. Investors say they are bearish but hold high levels of stocks.
Another factor pointing to a waterfall decline is that we are in the middle of the Gann Panic Window.
This timed the crashes in 1929 and 1987.
The difference this time is that I started the count on the interim secondary rally peak of March 29.
Yesterday, the heretofore stock market stair-step escalator took an elevator lower on Thursday — underpinning the idea of a crescendo of selling… a Killer Wave.
The action in low beta consumer staple stocks and defensive stocks yesterday such as PG and the crash in TGT in tandem with AAPL and MSFT being sent to the wood chipper reflect a whiff of napalm in the morning.
We must be mindful that anything could happen over the next several sessions — the SPX is in catchup mode to the downside.
In November 2021, we stressed that “the market would get hit hard in January with a likelihood that the SPX Yearly Swing Chart would turn down in the first half of 2022.”
IWM turned its Yearlies down and kept descending.
Ditto the Q’s.
The SPX is behaving like a heat-seeking missile on course to turn its Yearly down.
It will do so on a decline below 3662.71.
That was the low in 2021.
Interestingly, that occurred on the first week of 2021 — just like the ATH occurred in the first week of 2022.
The synchronicity is telling.
On the Hit & Run private Twitter feed, we warned that the rally into Wednesday’s high tied to a test of our proprietary Pocket Pivot Indicator mirroring the pattern from May 4, which produced Train Tracks to the downside.
The Pocket Pivot served us well as the SPX left its overhead 20 day moving average unkissed before reversing.
What are the levels to watch?
Late last week we showed a weekly SPX below indicating new lows.
If the channel breaks, it opens the door to a flush to the 3500-3600 region for a potential low to this first intermediate term low.
QQQ has been the point of the sword of the bear market.
Today “squares-out” with 286 and 270.
Blue May 19/20
Green 270
Pink 286
The indication is the Q’s are on a trajectory to 286 today/Friday.
If another whoosh like Wednesday is on deck, they could strike 270 into Option Expiration Pinball on Friday.
