“All hands on deck, we’ve run afloat”, I heard the captain cry
Explore the ship, replace the cook, let no one leave alive.” A Salty Dog, Procol Harum
Yesterday morning’s report showcased SMH the Semiconductor Index showing the chart below.
Let’s see what happened.
SMH had a massive Breakaway Gap below a Bottoms Line from April (red), dropping toward its 50 day line.
In so doing SMH off set the Up Gap from June 12th producing a Jump The Creek sell signal
Hit and Run went on to say in yesterday morning’s report:
From the 283 high
90 degrees down = 267. So SMH is testing 90 degrees down pre-market in tandem with its 20 dma.
180 degrees down = 251 which ties to the 50 day ma.
270 degrees down = 235.
A full 360 degree rev down = 220 with the 200 day moving average at 200 which ties to a test of the April low.”
Of course the 200 day moving average is moving up. It could easily be at 200 by October.
SMH is bouncing off this test of its 50 dma near the 180 degree pullback region.
That is the normal expectation of such a technical convergence.
The upside pivot for a bounce in the extreme is 267 (90 degrees down and the broken trend line
Near 265.
SMH has carved out two Key Reversal Days in 3 weeks.
June 20th and July 11 as well as Wednesday’s massive Breakaway Gap.
From my perch it looks like the July 12th KRD followed by yesterday’s gappage is an impulsive Wave 1 decline.
This morning’s retrace could be part of a corrective Wave 2.
Alternatively SMH could drop to 251 and fully test the 251 square down (180 degrees) before mounting a Wave 2 bounce.
Be that as it may, when Wave 2 completes, a dramatic Wave 3 down should commence with SMH taking out its 50 day like with authority.
The leader of the wolf pack is NVDA.
Below is a weekly NVDA from the October 2022 low showing the strong likelihood of a culminating 5th of a 5th wave top.
NVDA is emblematic of the Momentum Unwind of late which has seen a surge into the small cap IWM and the DJIA.
Money managers don’t get paid to sit in cash. Their mandate is to invest the money people have placed with them.
Hence some of the worst decisions are made at tops when this along with performance considerations has them chasing stocks at tops regardless of their market view.
Often they have to be taken to the woodshed to disabuse themselves of long positions.
QQQ home of the Masters Of Momentum stocks, the Mag 7 and their ilk, gaped below a Bottoms Line from May 31st taking out its 20 day ma in the process.
It may backtest the 20 dma at 488 region, but it’s on a trajectory to its 50 day line at 469.
In sum yesterday morning Hit and Run noted that the downside SPX pivot, 180 degrees down from high was 5595.
We closed below it but not by much.
The futes are indicating an attempt to regain this key level as I write 3 hours before the open this morning.
Be that as it may, after big sell days, upside pops are not what genuine reversals come from.
Typically, if there is going to be a bonafide reversal it comes from a down open and then a rally.
By definition this is the nature of a reversal.
Moreover, mid-July has been on our radar as the start of a panic for the last few months.
I see no reason to suspect yesterday’s carnage was not the tip of that potential panic.
As noted in this space yesterday, we are 37 years from the 1987 panic and 17 years from the primary top and panic from July 19th, 2007….that was the last cyclical bull market top.
On my Square of 9 Wheel 17 and 37 vibrate/vector each other.
They point to August 9. That is the date of the low in 1982 that started the Mother of All Bull Markets.
1982 is 42 years ago.
On the Square of 9 Wheel 42 is 180 degrees straight across and opposite mid-August.
Time, Price and Pattern are synchronous with a major turning point on the table.
While theoretically, if the SPX can offset yesterday’s gap I can see a scenario for 4820 ish SPX,
The 5667 region squares out as an equally potentially important region which we will walk through
For subscribers in tomorrow’s report.
Bottom line. Caution is warranted.
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