Archives January 2021

Founder's Trading Journal

Intraday Update – Liquidation Breaks

AF Thornton 0 Comment

Navigator Alogorithms - 100% Invested

In life, it is said that you get to choose your friends but not your family. In the markets, I would adjust the axiom just slightly. You get to choose your moments but not your company. 

On any given day, we encounter all kinds of investors with differing objectives in the markets. There are the Warren Buffet and institutional types, dug in for the very long term. There are swing traders tuned to a more intermediate-term time frame. As an example, we designed the Navigator Core Strategy for swing trading. There are day, hourly, and even 1-minute time frame traders.

For the most part, day traders are usually the weakest hands in the market. Typically, they are less adept, inexperienced, over-leveraged, and undercapitalized. On a low volume today, such as today, you can usually assume that the only players at the table are the day traders or weak hands. The NYSE volume was only 20% of Friday’s volume this morning and about half as I write this.

So what happens next in these circumstances? Take a look at the red bars on the 5-minute chart below:

Day traders get poorly positioned, a few hedge funds decide to have some fun, and the rest is history. This morning, that led to a 60-point sell-off in the S&P 500 for no discernable reason. 

Thus, a Liquidation Break is defined as “a sharp downward break in price that often seems to come out of nowhere and is usually short-lived. It is caused primarily by short term traders whose inventory positions are overly long.” The most recent longs with the poorest trade location usually initiate the sell-off then the vultures sweep in. The market typically recovers quickly, leaving behind a lot of frustrated traders.

The risk of Liquidation Breaks, as I have been identifying in the daily narratives this past week, is another reason why I teach traders to “think” as well as use indicators and rules. This is also why, in most cases, we require a stop to be valid at the “close” rather than intraday.

So now take a look at the daily chart below:

While last the candle is somewhat faint, you see a spike tail with the open and close equal at this writing, but comfortably above our stop we discussed this morning at 3825.50.

So unless the market closes below our stop this afternoon, we stay the course in the core, Navigator strategy. Notably, the market is healthier for the process after a liquidation break.

A.F. Thornton

Founder's Trading Journal

The Week Ahead – Nimble Stage

AF Thornton 0 Comment

Navigator Core Algorithm Status

In summary, the market is likely to push a bit higher this week. There is a 70% probability that the upper end of the S&P 500 Index’s projected range will be 3893. If the market does start a correction this week, the lower end of the range is projected at 3766. There are possible continuation entry points on Transportation (IYT), Energy (XLE), and Financials (XLF or KBB). Big Tech (and therefore the NASDAQ 100 (QQQ)) has reasserted relative-strength leadership. Having said all of this, the market remains a bit stretched short-term, with a peak in the nominal 40-day cycle projected soon, and the next intermediate low projected to occur mid-February.

Last Friday, we helped everyone enter the S&P 500 Index on a continuation trade. The signal came at 3825.50 on the S&P 500 E-Mini futures, and the market allowed quite a bit of time to enter. Likely, some entered either slightly above or below this zone.

The follow-through has been muted by key resistance around 3850. That is the level to conquer if we are to take the market higher this week. As I often say, the S&P 500 claims or surrenders its territory in 50-point increments. When I see the index close above 3862, my confidence increases that the index has overcome the 3850 resistance and is ready to move to the next 50-point increment level at 3900. A close below 3833 would lessen my confidence and increase the likelihood that the market would move back to test 3800.

Recently, we have been experiencing sort of a push-pull rotation with growth stocks (think technology like the NASDAQ 100 (QQQ) and value stocks (think energy (XLE), financials (XLF or KBB), and transportation (IYT)). Essentially, Growth and Value have been swapping leadership positions over the past few months. Last week’s most notable event was the reassertion of Growth (big tech leadership), also reflected in the NASDAQ 100 index’s steep rise.

The big tech bounce came at the expense of profits rotating from the value sectors. This caused the value sectors mentioned above to move back to their mean on the daily charts – which is where they start the week. Continuation entries, or even the opportunity to take a short-term long position in the three sectors, is on my radar. I would use a close above the 5-day Exponential Moving Average on the three sectors as a potential buy signal, and I will communicate anything I see.

It is also important to note that we are in the “Nimble Stage” when considering how to treat our long S&P 500 or NASDAQ 100 positions. This means you need to be attentive because a correction in the 3% to 5% range (at minimum) will begin soon, based on the distance these indices have achieved from their mean at the weekly and daily 21-day Exponential Moving Averages.

Supporting the case for a near-term correction, we are a bit more than halfway through the Nominal 40-day cycle, with the next low projected in mid-February. The market is likely to peak and begin to move into that projected low soon.

Adding to caution here, February typically is one of the weaker months in the market, and reassertion of narrow, big-tech leadership is causing breadth to narrow, along with breadth divergences, which often precede a pull-back in the indices.

If you cannot be in front of your computer, consider setting a stop each morning on your long positions about 2 points below the 5-day exponential moving average. For example, I would set my stop at 3825.50 on the S&P 500 E-Mini Futures this morning – which also coincides with breakeven on our Friday continuation entry and ensures a profit for our original entry point at 3812.50.

In summary, then, the market is likely to push a bit higher this week. There is a 70% probability that the upper end of the projected range will be 3893. If the market does start into a correction this week (and I don’t expect that quite yet), the lower end of the range is projected at 3766.

Stay alert for my signals this week. If you are interested in live trading tomorrow, please drop me a quick email at info@BluPrintTrading.com so that I make sure you get an invitation.

A.F. Thornton

Founder's Trading Journal

Summarizing this Morning’s Continuation Buy Signal

AF Thornton 0 Comment

Navigator Algorithms – 100% Invested

Typically in these pages, we are either in or out of the market depending on the Navigator Core Model and Algorithms. We set our buy and sell stop and move it up or down as appropriate. These are swing trading signals, designed to be slow going and fewer in aggregate (subject to market conditions). Our last buy signal came at 3812.25 on Wednesday morning near the open.

Because we could not communicate the last buy signal beyond the Founder’s Group text alerts, I wanted to help everyone find a continuation entry point on a pullback. As communicated in the morning outlook. This morning was developing to be that opportunity, so we set up the morning plan and went forward.

The continuation entry came close to the open and around 3825.50, so I communicated it. We set the initial stop at 3824.50 but realized it was a bit too tight for the morning volatility as the market rolled around to retest the morning and overnight low (and run everyone’s stops). I then widened the stop to 3822.50 and finally 3721.50, which remains the hard stop for the rest of the day. There was a typo in one of the alerts, which listed 3721.50 as the stop—apologies for being off a digit – but no harm, no foul. If you are in, the market looks solid for now. The nice thing is that there were multiple opportunities to get positioned this morning.

As communicated in the morning plan, the key this morning was to hold the new ground above 3800. We did not even touch the old gap at 3811.25, something I identified would be a sign of strength. With the Weekly Expected Move high back up at 3849, my expectations for the rest of the day are that we hold the ground, prepared for next week. I don’t expect much in additional gains today, and certainly not anything above the Weekly Expected Move high for weekly options expiration this afternoon.

Continuation trades are tough when you are not live. Flexibility is the key, as you may have observed. This morning has been a good opportunity to see the value of live trading, text alerts, and the supporting education I will be introducing tomorrow morning.

I am not sure we will make continuation trades at this level in the future. They are better aimed at live trading. But at least those of you who missed Wednesday’s signal had a chance to get positioned.

Don’t forget. The 2021 forecast is tomorrow at 10:00 AM PST. You will receive your invitation later today.

A.F. Thornton

Founder's Trading Journal

Un-Trumping Amerika and a Secondary Entry Point

AF Thornton 0 Comment

Navigator Algorithms – 100% Invested

Bottom Line

As the new administration rolls the Trump Agenda backwards, one of the first attacks is on fossil fuels – oil in particular. On his first day in office, Biden canceled the Keystone Pipeline and began a war on fracking and US energy independence. Look for energy prices to skyrocket in the coming months. Besides the nearly 200,000 job losses associated with the rollbacks, prices at the pump are likely to rise significantly.

The rising energy prices will also lead to rising utility prices. All of this will serve as “hidden taxes” on the middle and lower middle class who spend a disproportionate amount of their income on these expenses.  This dark cloud over the economy is likely to lead to stagflation similar to what we experienced in the 1970’s. 

Short-term, the overnight futures market sank, perhaps providing us with a secondary entry point today or Monday. Stay alert today for a follow-through signal for those who missed Wednesday’s buy – or a sell signal if we run the stop on our existing position.

Navigator Core Algorithms

ETH Daily ES

The daily trend is up but riding our stop line around the 3818 level. As expected the Weekly Expected Move High at 3849 backstopped the market yesterday. This will either serve as a secondary entry point, or we may run our stop today. Stay alert to further notification.

The key issue today is whether price will find acceptance back in the previous six-day balance range between 3750 and 3800. Likely, however, this is a retest of the breakout into the new range above 3800. 

Narrative

Dominant market themes include a vaccination supported, broader-based economic recovery now supported by the new stimulus package. We remain in the strong seasonal strength period for stocks which occurs from October through April. Tech profits continue to be rotated into prior, underperforming sectors. Fed policy remains favorable, although Congress recently took some of the punchbowl away from the Fed in terms of main street lending. Considerable uncertainty surrounds the economic impact of early decisions by the new administration.

Investor sentiment remains the biggest concern – particularly a retail option investor bubble. Excessive optimism abounds as manifested in record margin debt, confidence surveys, options speculation, stocks vs. GDP and record IPO issuance. The frothy sentiment exposes weaker hands, keeping the index vulnerable to almost daily liquidation breaks.

Stops are more critical than normal in this environment. Make sure all your trend lines are up to date with the liquidation breaks.

Volume Profiles

Key Economic Reports

PMI flash reports, existing home sales, crude oil inventories, and oil rig counts are all due today.

Morning Plan

As set forth above, the risk this morning is that current prices are ticking back within the 3750 to 3800 balance area from last week. We will open with a solid, true gap lower on the heels of a poor high in yesterday’s distribution. Poor highs typically lead to backing away first and then should be carried forward for repair. In essence, longs with poor location got stuck yesterday and are backing away.

Overnight inventory is about 90% net short, and we are currently trading in the lower third of the overnight range. A large unfilled gap is still in play just below the overnight low, with the top of the gap at 3811.25 and the bottom at 3797. Expect the gap to provide support until it doesn’t. Continuing to hold above the gap without entering it is the most bullish outcome and would support a new entry point and continuation trade. Some acceptance within it or a full fill would be less so and would potentially change the current tone a bit, perhaps running our current stop.

The overnight selling is old business, taking care of the poor location longs trapped near the poor high. Our early focus is on whether or not they are done or not. Failing to take out the overnight low early would tell us that they are done, and new business can commence, which “should” be new money buyers coming in.

Given the inventory position and knowing what we know about the sellers’ nature in the overnight session, there remains a potential for an early fade. We need to pick our spots wisely using either the first one minute high or across back up through the open as the key to reversal after any initial drive lower.

If the overnight low holds or the fade is only slightly into the old full gap fill, target the overnight halfback first at 3831. Should the gap get breached and we have very bearish internals and faster tempo, this would tell us that newer sellers are coming into the market and we should target the gap bottom at 3797.

A.F. Thornton

Founder's Trading Journal

Housekeeping Update

AF Thornton 0 Comment

Though I had to rewrite the last two blogs, the Website, Email, and Blog integration are back to full functionality.

You will be receiving an invitation to the Live 2021 Forecast Webinar scheduled for Saturday morning at 10:00 AM PST. We will be recording the Webinar if you are unable to attend. Again, I cannot emphasize how important this Webinar is to your financial security and future.

A.F. Thornton

Founder's Trading Journal

Morning Outlook 1/21/2021

AF Thornton 0 Comment

Navigator Core Algorithm Status

ETH Daily ES

The daily trend is up coming off a 3812.50 core buy signal on 1/20/21. The move off the 1/19 low has been quick and powerful. After reaching another all-time high, the index is skirting the Weekly Expected Move high around 3849.

The action remains bullish – with the caveat that Gamma risk (the risk related to the retail investor option buying frenzy) is unusually high – maybe even in bubble territory. Other risks include some breadth divergences as can be seen in the unweighted S&P 500 index ETF (Symbol RSP).

With prices at all time highs and an expansion of range yesterday, buyers and seller are more likely to be balanced today. A change in tone and potential further correction would only be signaled by acceptance of prices within the recent six day balance range between 3750 and 3800. The FANGMAN stocks came to life yesterday and are adding to those gains this morning, giving a relative strength hat tip to the NASDAQ 100 index.

2021 Forecast Live Webinar

The 2021 Live Forecast Webinar will be Saturday Morning at 10:00 AM PST. This is likely the most important forecast I have ever put together. There is significant and draconian change ahead that promises to be more damaging than the 2008 financial crisis. If you are not prepared, the consequences will be devastating. On the other hand, if you are prepared the rewards will be equally significant. The Webinar will be recorded if you cannot attend.

A.F. Thornton

Founder's Trading Journal

Trips and Round Trips

AF Thornton 0 Comment

Navigator Algorithms – 100% Invested

We went back into the market at the open yesterday on a core, Navigator buy signal at 3812.50. We got the signal out by text to the Founders Group, but an automation feature hiccupped over the past week on this site. Yesterday, the software link broke down completely – which I finally traced to an update from a Woo Commerce app on the site that created a software conflict. Fun, right? Anyway, we were unable to post the signal here until now.

The market never looked back this morning and already tagged the Weekly Expected Move. There are some concerns with breadth and financial stocks weakening even though Morgan Stanley announced stellar earnings. It is the old “when what should happen doesn’t” theory. I am also cognizant that “buy the election sell the inauguration” resonates with many investors. So we may take profits on this latest core model signal in the morning – we shall see. If you are in cash, my advice is to wait for the next signal. I will keep you advised.

The 2021 Forecast Live Webinar is scheduled for Saturday Morning at 10:00 AM PST. One of the items on the agenda is opening up the Founder’s Group to others who might be interested. The Founders Group consists of a small group who participated in the Navigator algorithms’ creation. They were the loyal “testers” as each version emerged from the lab. They get multiple short and intermediate buy and sell signals in real time by text, and the signals will be expanding in scope, even beyond the indices. They also have access to live trading and mentoring with me.

Once I perfected the algorithms, I wanted to have all the bugs worked out on the communications side before opening up the group. We are almost there, as the alerts are based on a phone app. I will cover all this Saturday morning.

In the meantime, it is nice to be back in the saddle after 10-days in the Peoples Republic of California.

A.F. Thornton

Founder's Trading Journal

Almost Home

AF Thornton 0 Comment

Navigator Algorithms – 100% Cash

I am saving my best thoughts for a few days from now as I am still about 10-hours from home as the freeways go. I am enjoying the drive through some beautiful Southern Utah and Western Colorado country. 

I even had a chance to catch some breakfast in Rifle, Colorado, at our new Colorado Congresswoman Lauren Boebert’s “Shooters Grill.” The breakfast was excellent, and yes, the waitresses actually did wear their weapons on their hips. It makes me wonder if that is where we are all headed, a reprise of the Old West. After all, crime was lower when everyone carried.

Of course, I am musing over the Biden administration testing the troops in D.C. for their political leanings. Let’s see if I have all of this right. We have defunded the police – now they can replace this bastion of Trump voters with loyal lefties. We will remove all Republican and independent military who voted for Trump (that will be about 90% of them and quite an adjustment period). Congress is proposing new secret police to monitor domestic terrorists (otherwise known as Trump voters). The intelligence community will focus inward on “white supremacy” – no more worries about their Chinese or ISIS comrades now that they are all on the same side. Speech that opposes the Biden regime will be deemed unconstitutional “hate speech.” I could go on, but I think you get the picture. Simply put, the Biden regime will convert all of the levers of power into loyal, lefty institutions. I would laugh if it weren’t so serious.

Clearly, I am not amused as I am smart enough to see how this will be used by all sides to oppress free speech and opposition. My job is to see how we can make money from all this, but I am not sure it will matter if these trends unfold this rapidly. After all, the new motto is “sharing is caring.” So we make money, but we have to share it in the form of draconian taxes.

Meanwhile, the US enjoyed a three-day weekend. In the Global Markets, the S&P 500 futures bounced off the mean. That would certainly be a positive start to the rest of the week. If the market can continue higher, we may realize the scene where the market wraps itself around the upper megaphone channel line, winding higher like a vine around the top of a fence line. Let’s see how the market handles this bounce when everyone is back today, and I will communicate further insights.

Meanwhile, I am eyeing those “Land for Sale” signs out here in the middle of nowhere. Nowhere seems to be a good place to be, while the greatest Country that the world has known adopts an ideology that has failed everywhere it has been tried. I am not sure where the hope will be after that – though I am having “Atlas Shrugged” fantasies that another place will arise for those of us who might not enjoy providing all the bounties for the communist harvest. Texas?

Don’t get me wrong. I do hope I am misreading the tea leaves. I may not be the sharpest tool in the shed. Perhaps I am missing something? For a President that overwhelmingly won the popular vote by 80 million-plus, why the need for all the protection? Why the need to prevent Trump from running again? Didn’t they beat him handily? How could he be a future threat? I heard they beat Trump so badly that there were more votes than even people who voted. Now that is a victory like no other! I don’t get the paranoia. The Biden regime is acting like they did not win fair and square. Behavior matters more than words.

Thus far, the market is happy. As long as the market is happy, I won’t complain. I will presume I missed something. In politics as in many other things, sometimes the bark is worse than the bite. In the meantime, I am doing my 2021 forecast live at 6 pm PST Thursday. It will be recorded.

Be there. This may be the most important forecast of my career.

AF Thornton

Founder's Trading Journal

Stopped Out by a Double-Edged Sword

AF Thornton 0 Comment
Navigator Algorithms – 100% Cash

We are back to cash this morning as we triggered our stop yesterday at 3798.25 (5-day EMA) for a small loss from our entry at 3801.25. For the most part, the Tech Monsters continued to be punished by investors for their oligarchical attacks on the First Amendment. The S&P 500 index and the NASDAQ 100 both suffered. Meanwhile, the New World Order is preparing to grab the reins of government – and the cash printing presses are ready to roll with an additional $2 trillion stimulus proposal. If approved, the deficit will roll on up and over $30 trillion – but who is counting?

This morning, then, we get to add an element of WWSHD (when what should happen doesn’t). The $2 trillion Biden economic plan announced yesterday has done little to cushion the Big Tech blow so far. By the way, losses for Facebook and Twitter investors now well exceed $50 billion. The Class Action Plaintiff’s bar is going to have a field day with that for sure. So while we were stopped out for a small loss, we are gifted with the added pleasure of watching the Big Tech bullies get eaten alive by their leftist brethren.

I have a long drive back to Colorado this weekend. With one in three people enduring the China Virus in Los Angeles, I decided not to fly. I will be outlining my third attempt at the 2021 outlook on the way, which I hope to record Sunday night. I am even considering a live broadcast Monday evening so that I can take questions. We will see how the weekend goes.

It is only the second time in a year we have been stopped out with a small loss. But therein lies the value of stops. Both the market and sector leadership are in flux. 

The actions of the past week are unprecedented in a Democracy. More evidence surfaced yesterday that the left organized the unrest at the Capital well in advance and dressed up as Trump supporters in collaboration with CNN camera operators. But impeachment is just another day in D.C. now, so why bother to make sure it is justified. Perhaps that narrative could change slightly – that President Trump incited the left to riot – dressed up as his supporters. That way, they could blame him for last summer’s riots too. Truth is likely to become more and more elusive as time marches forward in this dystopian movie.

The market will now start focusing on earnings. Yes, it is that time again.

More on all of this soon. In the meantime, the market generated information is to stay out.

AF Thornton

Founder's Trading Journal

Facebook and Twitter get Gabbed

AF Thornton 0 Comment
Navigator Algorithms – 100% Invested

First, a couple of housekeeping items. I am operating from a hotel this week as I am working on a couple of California projects. Some of the security firewalls are blocking my automation. Stay tuned to the website at www.BluPrintTrading.com just in case something does not make it through. For now, I am sending links through Mailchimp.

So Gab.com is adding nearly one million users daily as it has become the “Big Tech Proof” alternative for the 75 million Trump “Deplorables.” The Christian family who runs Gab was way ahead of their time and saw this day coming. This is the first evidence that the eco-system for the other half of the country is well underway. Meanwhile, the political establishment is well on their way to squashing the Trump movement. It is not likely to work, seems unwise and may even strengthen the movement. Twitter (TWTR) and Facebook (FB) have jumped over the cliff – well-deserved for everyone but their shareholders.

The market is yawning at most of this, though it remains lofty. Today, we will get a peek into the Biden economic plan. That might give the market some further direction. We are in around 3801.25 on the S&P 500 futures with an initial target of 3830. We will continue to use the 5-day EMA as our stop and that sits around 3798 this morning.

It has been quite a week. Slowly but surely, things will settle down and we will get a better idea as to where the market wants to focus. Volatility will remain higher than normal until an intermediate correction finally presents.

Stay tuned,

AF Thornton

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