Is the Bottom In?
One of the ways we define the near-term trend is by the 3-Day Chart.
It turns up with 3 consecutive higher daily highs (intraday, not closing highs).
It is not so much the turn-up of the 3-Day Chart in and of itself that tells the tale of the tape, but rather, the subsequent action.
As I like to say, speculation is OBSERVATION, pure and experiential; thinking isn’t necessary and often just gets us in trouble.
When the trend is down and the 3 Day Chart turns up it often defines a pivot high, soon, in terms of time and price.
However, when the short-term trend is changing from down to up, you will get upside follow through.
The leading NDX turned its 3 Day Chart up on Wednesday.
However, it was a dubious turn up as the index closed far from session highs on Wednesday.
In fact, on Wednesday, the NDX closed well below the mid-point of the day’s range.
Thursday, the NDX made up for Wednesday’s equivocal action FOLLOWING THROUGH from Wednesday’s
3-Day Chart turn-up and closing at/near session highs.
The daily NDX may not look impressive but a slew of former growth glamours stood on their heels on Thursday.
Names include:
FIVN, CHWY and W..all long ideas from the Hit & Run Nightly Stock Report.
Other names with explosive moves yesterday include ZS, CRWD, SNOW (which members were alerted to take long visa vis the Hit & Run Private Twitter Feed), and BILL.
Yesterday, NDX closed at 11,697 and is now in a position to attack Phil D Gap at 11,832 from June 13th.
Offsetting that open gap triggers my Jump the Creek buy pattern, opening the door to higher prices — likely the open gap in the 12,000 region which ties to the declining 20-day moving average.
A push to the overhead 20-day moving average sets up a “possible” Holy Grail sell signal. This will be a big test for the market.
Notice in March the NDX cleared its declining 20-day telegraphing a continued counter-trend rally.
Recently, in late May NDX cleared its 20-day ma once again perpetuating an extension higher.
Is it possible that clearing and sustaining a rally above the 20-day moving average for the 3rd time will indicate a summer rally?
In late May the extension higher was short-lived….one day.
It led to what most technicians believed was a Bull Flag that would resolve to the top side.
Instead, the NDX broke down with authority, knifing back below its 20-day which prepetuated a waterfall decline.
The big question is was the three-day swoon from June 9-13 a capitulation of sorts.
It may not be a classic catharsis as several measures such as VIX did not explode; but, nevertheless, the plunge with back to back Breakaway Gaps has the look of a wash-out with the number of stocks below their 50 and 200-day moving averages hitting extremes as did the number of net new declines.
As to the VIX, it may be that few professionals are/were not inclined to buy fire insurance after the house has burned down.
Such is the anomaly of “slow-motion crashes” that has characterized the tape in the first half of 2022.
Moreover, from its 4818 all-time high, the SPX satisfied a 1620 degree price decline at 3649.
I’m not going to get into the sacred geometry here as to why 1620 is significant other than to say that it is three “cubes” down from high and markets play out in threes.
Keep in mind that master market operator WD Gann used this kind of geometry to make remarkable calls at turning points.
He called this the Principle of Squares. Of course, a true square is a 3-dimensional cube.
As well, it is more than interesting that 1620 ties to a Fibonacci 1.618.
In sum, it is possible that the first intermediate-term decline of the bear has been seen.
If not we will see pure panic if the market rolls over from here into late June/early July.
If the wheels come off the chart below shows where the SPX may be headed….be it now or on the next intermediate-term decline following a counter-trend rally phase.
I drew a trend line connecting the 2018 peaks. Note the false breakout prior to the Covid Crash.
Gee, it’s almost as if the breakout in late 2019/early 2020 was orchestrated to allow those in the loop to sell prior to the pandemic.
Those kind of things don’t really happen do they?
I don’t believe in coincidences.
Notice how the March 2020 low was the 3rd drive down connecting prior swing lows staring in February 2018.
Got geometry?
The 2022 down-draft was not hard to forecast:A Rising Wedge along with a major cycle from January 1973’s false breakout prompted me to state in November that the “market would get hit hard in January to kick-off a sharp multi-month decline.”
Notably, the Rising Wedge snapped in the fall of 2021 (blue ellipse) prior to running up to an intersection of the two lines that comprise the Rising Wedge.
In other words, the first mouse got the squeeze while the second mouse (the second break) got the cheese.
So where could the SPX go if the wheels come off and we get a quick panic?
If you extend the black trend line connecting the 2018 tops you get the 3300 region.
This is what I call a Ghost Line as it seemingly has no relevance to the current price action, but the market has a memory and in my experience, often times price is spooked to a visitation of a past trend line.
Given how 3500 is a 50% retrace of the 2020-2022 advance…direct breakage below 3500 would clearly spook the market producing pure panic on the way to a kiss of the pre-Covid Crash highs.
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