Archives May 2021

Navigator™ Signals for Day Traders

Pre-Market Outlook – 5/7/2021

AF Thornton 0 Comment

Friday Morning, May 7, 2021

There are afternoon drives, and then there are afternoon drives. Yesterday afternoon looked like a Range Rover conquering Mount Everest at 100 m.p.h. All the bears remember is looking up at the tire treads as they got run over. And thus begins the 3rd (and perhaps final) run from the March lows, before the summer doldrums and fall correction sets in on the larger, 18-month cycle. This run is the 3rd push higher and the fifth wave in Elliott parlance, confirming our suspicion that the consolidation from April 19th through yesterday was part of a 4th-wave correction/consolidation.

Confirming that the shorter, 80-day cycle low is firmly planted, the NASDAQ 100 is pivoting (with relative weakness) from its 50-day line. Normally, the S&P 500 tags its 50-day line as well on the nominal 80-day cycle low. Instead, the index pivoted from the 21-day line. The S&P 500 did not tag its 50-day line, another bullish WWSHD (When What Should Happen Doesn’t). Added to a historic (never happened before) 13-day winning streak in the S&P 500 a few weeks ago, the price action can only be interpreted as extremely bullish, at least on the surface.

The S&P 500 also cleared its 5-day line yesterday afternoon – which is a “heads up” to a buy signal on the Navigator Intermediate-term swing strategy. My guess is that we will move through the trigger line today or Monday, solidifying the buy signal. I would have preferred more curl in the trigger line to bring us in lower than the old highs, but it is what it is. Also, I do not expect much progress today above the Weekly Expected Move (WEM) high at 4215 – as that is where weekly options expire at the close.

I was an aggressive buyer on the afternoon lows yesterday, but I was sweating bullets all the way. I practically wanted to pull a blanket over me and hide under the covers until the close. Maybe I was too aggressive. I often say, though, if it feels good, it is likely not a good trade. But it is definitely strange to be benefitting from breakouts in Dow stocks like Deere (DE) and Caterpillar (CAT). And the breakouts make sense in light of potential infrastructure spending ahead.

As a side note, when you have a three-week consolidation, you will find many stocks in volatility squeezes. If you need a scan for such stocks, shoot me an email at info@BluprintTrading.com. You will get the best bang for your buck choosing these stocks and riding these volatility squeezes as they fire long in a new rally.

Let me also identify two additional notables from this week and the last few sessions. First, the put/call ratio has spiked several times since last Friday, indicating too much short-term fear and that shorts could be easily spooked. That had a lot of influence on my aggressive actions yesterday afternoon – as the level spiked to .68, which has been the high end of the range since the March 2020 lows. If the market does not dip to accommodate the shorts by the close, they will cover, and that is what gives us the explosive rallies such as we saw yesterday afternoon.

Second, I cannot emphasize enough the influence of the Weekly Expected Moves (WEM) in the major indices. That is why I am constantly harping on the subject. This week, the WEM lows caught and saved both the NASDAQ 100 and the S&P 500. Market makers have to defend those levels or lose their proverbial shirts. Defend them they did this week. The NASDAQ 100 moved below its WEM low temporarily, but the market makers brought it right back so that their losses are minimized – if they have any at all – at expiration today.

Noting that these moves are influential, we need to look at the other side of that coin this morning. The WEM high in the S&P 500 is about 4215. That level may cap our gains today through the close, just as the WEM low cushioned the market earlier this week. 

One possibility is that 4215 caps us until the New York close, and then the futures will shoot higher in the short, post-closing session. Then, if all goes according to plan, it could make sense to hold longs over this weekend as there is a possibility that the futures will gap open Sunday night and Tuesday morning, no longer constrained by this week’s options expiration.

All of that sounds bullish. But lets at least look at the other side of this briefly. The more bearish case is that we stay stuck in the balance range and make another run lower. It is possible but less likely. All the reference points appear below.

Whatever you decide to do today, or on an intermediate-term basis, be cognizant that the risk in this market is as high as I have seen in my 34-years as a professional. Use stops, spreads, and whatever else it takes to protect your capital. For day-traders, your disaster stop is critical.

Morning Plan

We will open with a solid gap higher after a late day spike,  putting both spike rules and gap rules into play. Click on both terms and get familiar with them as a framework for how early trade may play out. The overnight high is a new all time high (ATH) at 4914. 

As with any true gap, look for the counter trend move first (fade) and note how much of the gap fills if any. Spike rules will tell us bias in the slightly longer-term as they will define whether or not prices from the late day rally yesterday are being accepted or not. Note the outcome after today’s session.

Given the Weekly Expected Move high at 4215, and today is weekly options expiration at the close, do not be surprised to see a brick wall at 4215, which could take us sideways for most of today’s session.

Keep in mind the bullish implications of new all-time highs. There is no overhead resistance – as nobody is stuck above us in a bad location. In fact, it is the opposite. Shorts will be forced to cover – though it appears that they had their opportunity last night in the Asian session. 

Upside references today will be the WEM high and all-time high at 4214/4215 (13,529 on the Nasdaq 100). Downside references will be the Navigator trigger line at 4208; the roundie at 4200 (roundies and half-roundies are always key psychological levels); yesterday’s high at 4197.25; and the top of the single prints and 10-day point of control at 4180. I am bullish above 4180 , though I do not expect much additional progress today with the WEM high as an obstacle. We can (and likely will) move above the level, but I will be betting that the move will be temporary as market-makers defend 4215 until the New York close.

Since options expire at the close, one remote possibility is that short-covering and exuberance push the S&P 500 far enough past the WEM high that the market-makers are forced to buy futures to hedge their portfolio deltas. I have not seen this happen in a long time – but it is a possibility. It is a guess as to the level required to trigger this mechanism, but I would guess at least 50 points above 4215 could trigger the market-maker buys.

Have a great day.

A.F. Thornton

Founder's Trading Journal

Pre-Market Outlook – 5/6/2021

AF Thornton 0 Comment

Thursday Morning, 5/6/2021

Nobody came away happy yesterday. For the bulls, we can say that the market did not revisit the lows and held within what is now a bit wider balance range. But the market rejected the gap area, the old balance area, and the 5-EMA. What makes a bull sad, makes a bear happy. So the aforementioned bull negatives are bear positives.

Pin the Tail on 4180

There is the old game, pin the tail on the Donkey (poor Donkey). Here, the game is to pin the tail on 4180, where all the volume over the past few weeks is concentrated.

Options strategists are no doubt selling premium around that level now, perpetuating it. Every day that passes then, the risk of an explosive move increases. Whichever direction the market moves outside the bounds of the balance area, all of those option players will have to scramble to unwind their positions. For now, the balance area is bounded by the all-time at 4211 and the recent low around 4114 – roughly a 100-point range.

For now, the S&P 500 index has support at 4114; also, the Weekly Expected Move low. That likely means that the big move will occur next week. Only time will tell. The recent low is likely an 80-day cycle low – a low of relative importance. However, if a bear market is underway, the cycle will peak early and roll over in what is called “left-translation.” What that means is that if you look at the semi-circle representing the cycle, it has the tendency to peak left of center rather than right of center, as with a bull cycle.

Yesterday’s action gave me no reason to change our intermediate strategy, which remains 100% cash.

Today's Day Trading Strategy

We will be opening inside yesterday’s range, with overnight inventory nearly 100% long, raising the possibility of a negative counter-auction at the open. Key support is the overnight low around 4151.50 and the half-roundie itself around 4150. From there, the key reference would be a retest of the recent low, 4/20 low, and WEM low, which is an area ranging from 4120 to 4110.

A move back up and through the open would be bullish, as would a move back up and through the 5-EMA and back into the balance area above 4167.

Watch internals. It is challenging for the S&P 500 to overcome tech if it continues to weigh the market down.

I would trade later rather than earlier, when the picture may be clearer.

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook – 5/5/2021

AF Thornton 0 Comment

Wednesday Morning, May 5, 2021

This morning is nearly the reverse of yesterday. The S&P 500 will be opening above yesterday’s range with a true gap higher so gap rules will apply this morning, but in the opposite direction from yesterday. The market will open in the upper half of the overnight range, with inventory nearly 100% long. Last night, the market nearly filled yesterday’s gap down and tried to find acceptance back inside the old balance range above 4167 – and we will open within that range this morning.

When overnight inventory is 100% long, we expect a counter-auction at the open, where the overnight traders take some profits. With a true gap, that can be part of the initial fade.

I would analogize where we are to working on the top floor of a skyscraper. Everything looks fine in your office as you are walking around and talking to your colleagues, until you go to the window. If you click to enlarge the chart below, you will see what I mean.

Monthly Chart - S&P 500 Index from the Day I Started in this Business in 1987

Other than a minor correction low yesterday on the 80-day cycle, neither the S&P 500 nor NASDAQ 100 indices broke their trends. With the S&P 500 index holding above the 21-day EMA and the NASDAQ 100 still below it – my short-term bias remains neutral.

The catalyst for the cycle low yesterday was some remarks released from Treasury Secretary Janet Yellen, indicating that higher interest rates may have to be tolerated to cool the economy because the extra $4 to $6 trillion in deficit spending was needed by the Biden administration regardless of its impact on the economy and inflation. Kudos for a bit of honesty.

Then, apparently, Ms. Yellen was taken out to the woodshed behind closed doors. The market later turned around when she backtracked on her earlier statements and towed the party line. “The inflation is transitory, and there is no need to raise interest rates.” Well, Janet, that did not seem to lower my expenses, now did it?

Although we are in the middle of the gap and also back within balance, I will start the session by noting whether or not overnight inventory corrects at all and, if so, how much. Whether or not prices can trade back into yesterday’s range will be important in gauging strength today and identifying the best trade in the daily timeframe. I would avoid this gap area and trade later rather than earlier, giving the market some time to show its hand before engaging with it.

A gap-and-go scenario will play out one of two ways today. We can get an early fade that will fail where we would expect it to then reverse higher, or we could have an initial drive lower that puts the single prints into play right away. The short is either at the balance area low or on a cross back down through the open in the first setup. The second setup is always harder to pull off as there is less of a reference as to where to place a stop.

With value (where 70% of the volume traded) significantly lower yesterday, my focus today will be on the gap and where prices trade in relation to its top and bottom.  Above the top of the gap is more bullish, while below the gap puts prices back into yesterday’s regular session range and confirms yesterday’s negative action.  The divergence between the NASDAQ 100 and the S&P 500 on the daily charts is considerable and adds to the complexities of where we find ourselves in this market. 

Be careful today. There are a lot of cross-currents.

A.F. Thornton

Navigator™ Signals for Swing Traders

View From the Top – Interim Update

AF Thornton 0 Comment

Tuesday Evening, May 4, 2021

Sometimes I can be dumb as a skunk (no offense to skunks). I was getting all excited this morning, thinking the market top had finally arrived. I shorted several indexes yesterday (Monday) and started handing out parachutes to less fortunate traders who went all-in long yesterday at a poor location. It is a wonder I wasn’t popping champagne corks.

But, from all appearances thus far, we merely put the bottom in on a minor correction today – likely of the 80-day cycle variety. Perhaps completion of a fourth wave in Elliot Wave parlance – with a fifth and final wave about to take us higher. This also was the “minor” low possibility I mentioned in Sunday night’s weekly outlook. I had already profitably covered some of my shorts at the open today (dumb – I should have kept all of them until mid-day). I have been such a chicken lately (no offense to chickens). I suppose I have been overly protective of my capital due to the positive and rational economic and political environment. Of course, I am being facetious.

I sent out this alert as we approached the important support zone mid-day, where I covered the rest of my short positions on the S&P 500. Reviewing everything tonight, the volume spike today and the second spike in the put/call ratio since last Friday makes me believe that the low is in – at least for now. That does not necessarily portend new highs – likely some indexes and sectors will see new highs and some won’t. It all depends on the success of this next attempt to pivot higher.

We shall see what tomorrow brings, but the indexes are more likely than not to pivot higher here. The S&P 500 might even attempt new highs before finally rolling over into the 18-month cycle correction. I am not so confident about the relative strength of growth or tech stocks and their dominant index, the NASDAQ 100. The index would be lucky to reach its recent all-time high. All of this leaves me in a 24-hour wait and see mode.

The difference between a minor low and a major one, and the complications we face here, has to do with our new friend – inflation. The positions of the cycles also influence the outcome – and the longer cycles have wide variations in their troughing windows. 

To satisfy the criterea for an intermediate correction, nearly all 11 S&P 500 sectors will need to participate in the precipitous decline. Today, tech bore the brunt of the decline as we continued to see rotation back into the value/cyclical sectors, particularly those that benefit from inflation. This creates a math problem because different sectors have different weightings and influence on the indexes. With the highest index weighting at 27%, Tech can weigh the major indexes down like an anchor – even when the other sectors are trying to float.

The labels below from today show the current sector weightings in order of their influence. Four out of the 11 sectors were still positive (green versus red) today. Healthcare would be defensive and expected to perform better in a decline, so it does not count as much in my analysis of the day. But Financials, Industrials, and Basic Materials are risk-on sectors that all benefit from higher inflation and interest rates. Energy benefits as well – and it was barely negative.

Also, there is a bullish, ascending triangle in retail (XRT). Even Warren Buffet believes retailers have pricing power here. By the way, have you noticed the shrinking package sizes at the stores lately? Sneaky! Incidentally, Mr. Buffet announced that he was terrified by current market valuations at the recent Berkshire Hathaway meeting. 

So for the moment, what we are seeing is another rotation out of tech and into sectors that can both preserve their profit margins and benefit from the inflation that is brutally attacking the economy, consumers, and lower-income Americans – courtesy of the Uniparty (both Democrats and Republicans) run amock. 

Our rulers have fallen in love with the printing press and seemingly lost their minds. Or, from a more dystopian perspective, they are purposely levying inflation – the most hideous, regressive, underhanded, and hidden tax known to humans on unsuspecting and Americans. Lower and middle-income earners will suffer the most – just as they always do. Our rulers suggest that only Americans making less than $400,000 will see a tax increase. Really? What a joke! Does that include inflation? Obviously not.

I laugh when all the headlines read, “Inflation is Coming.” Look around, friends; it is already here. Look at housing prices, gas prices, grocery prices, car prices, etc. – what the hell do they mean “it is coming”? The recent rise in lumber prices alone adds $36,000 of additional cost to the price of the average newly constructed home.

I can hardly discuss inflation, as I am seething with anger watching our politicians take this country down the same road as 1920s Weimar Germany. The current crop of politicians are so unbelievably arrogant in ignoring history’s lessons. I am darn sick and tired of their new love with MMT (Modern Monetary Theory). It is not unlike the Covid-19 vaccine- we are all current guinea pigs of inadequately tested and proven theories. 

With MMT, particularly the leftist politicians and bankers think they can print as much money as they want because the US Dollar is the current world reserve currency. The truth is – MMT really stands for “more money today.” The hell with the future. It is the current ruling class version of the argument “this time its different.” Those are the four most dangerous words in financial market history. IT IS NEVER DIFFERENT – no matter how much smarter this group thinks they are than their predecessors throughout history.

Here are the lessons of history – in case one of these morons ever reads this. There isn’t a single fiat currency that has lasted as a reserve currency for more than four generations in the history of the world. Moreover, there is no dominant world power that has lasted more than four generations at the global helm in recent memory. That is what a fourth turning is all about.

I am seething because I have to sit and watch our corrupt political class walk us right into a collapse, surrendering world domination to China. Sometimes, I even believe a cabal in our government wants the collapse so they can reboot us in the authoritarian model of China and the World Economic Forum’s Great Reset. The US Constitution is a terrible inconvenience for these people. They prefer to toss it out in favor of the surveillance state.

Know this; there are no accidents or coincidences. It is almost as if “heads” – the central planners win – “tails” the people lose. I can hardly contain my disdain for Washington, D.C. these days, and the incompetent, ego-maniac bureaucrats that run it. Our founders feared this day would come from the outset of the country.

And let me be clear; I see little (if any) difference between Republicans and Democrats, save a very, very few good ones on each side. 

Make no mistake about where we are – this is the people versus the ruling class. This is not about Democrats versus Republicans, conservatives versus liberals, or one group identity versus another. All of that is a smokescreen to attempt to distract and divide us. God forbid if all of us got together on our common ground and threw all the “&*%(#$” out. If the people don’t get a grip soon, the Uniparty will take this country – and our assets – down. And it will happen sooner rather than later.

So maybe we party on from this minor low – I haven’t decided yet. I don’t want to be the last one to turn the lights out. I cannot possibly convey how bad things could get if we don’t turn these corrupt, asinine policies – and the inflation that follows – around soon. You know it in your heart. 

Unlike the ruling class, you have common sense, haven’t taken a payoff, and have no agenda other than a decent life for your friends and family.

Thanks for letting me rant.

A.F. Thornton

Navigator™ Signals for Day Traders

Update 1 – 5/4/2021

AF Thornton 0 Comment

Careful here – we are coming into important support for both the S&P 500 and the NASDAQ 100 – so look for a possible bounce. I just covered some beautiful shorts (see morning commentary). 

Adding further caution (if you are short), the put/call ratio is high, up around .71 (a level associated with recent minor lows). The indexes are approaching these multiple support structures with the put/call ratio and the daily chart cocked for a short-term low.

I want to see these support areas play out before taking any further short positions. I like to buy when fear is high and sell when it is low. At the moment, fear is high – at least relative to recent declines and certainly in the very short term. I prefer to cover my shorts in the circumstances, otherwise I am trading with, rather than against, the crowd.

But it is notable that the NASDAQ 100 gapped down and through the daily 21-EMA, slicing like a knife through butter. Of course, this is intraday and the day is not over, I am in love with profits, not my opinion. Don’t get too bearish yet and bag some profits here if you took my advice this morning and shorted at the balance area lows.

AF Thornton

Founder's Trading Journal

Pre-Market Outlook – 5/4/2021

AF Thornton 0 Comment

My best assessment of yesterday is that we got the expected short-covering in the morning, but the market (as represented by the S&P 500 Index) sputtered from there. Essentially, the NASDAQ 100 rolled over, weighing the S&P 500 down, while some of the cyclical sectors provided support, particularly energy. 

There is some WWSHD (When What Should Happened Doesn’t) MGI (Market-Generated Information) potential if we start the first few days of the month weak – with all the payroll contributions unable to take the markets higher. As well, the contributions could be cushioning what would otherwise be a steeper decline. Add that to your narrative.

So we come in this morning with a True Gap down. Gap Rules apply, focusing particularly on Rules #2 and #4. Overnight inventory is 100% net short, leading to a counter-auction (some temporary buying) at the open. We will be opening well out of yesterday’s range and at the bottom of the overnight range.

About an hour ago, the S&P 500 rolled over hard, taking out the bottom of the balance area at 4166 and bouncing off the high region of the single prints I had been mentioning the past few sessions at 4160. This also puts the index below the 10-day volume point of control at 4181, which should have provided support.

The NASDAQ 100 now sits just below its 21-day exponential moving average but just above its Weekly Expected Move low at 13,622. The NASDAQ WEM low is powerful support, along with the ’50 handle on the S&P 500 index at 4150. These levels could damage the indexes and would not violate the concept that both indexes are completing a “4” wave consolidation in Elliott parlance. 

A pivot higher at the aforementioned levels would allow for one more final push in a 5th wave. That would help me reconcile the bullish, ascending triangle pattern I see in retail stocks (XRT) as well as a new move higher in oil and energy stocks (XLE) seemingly underway. The final wave, should it present, looks to be all about the cyclical and value stocks. We will see.

In fact, this sector rotation keeps the S&P 500 afloat. If the S&P 500 stays above its 21-EMA and the NASDAQ 100 below, they can cancel each other out. The NASDAQ 100 (largely tech and growth stocks would still weigh on the S&P 500 index, stunting its progress. Put another way; the anticipated correction will not get seriously underway with a solo; it needs the entire orchestra.

My best advice today is to focus on two factors in the S&P 500 index. First, if there is acceptance in the regular session below the balance area, it does raise the possibility that the consolidation was distribution rather than accumulation. For the buyers with poor location, there will now be overhead supply. The second is how prices will react to the large single print section from 4160 to 4150 from April 23rd and as mentioned above. While overnight activity has just started to test this area, there has been no regular session activity there since traders printed it, and thus it remains in the narrative and play.

Early trade today will tell us a lot about the strength or weakness of the market and whether or not overnight traders have the direction right. As mentioned above, overnight inventory points to an early counter-trend fade, but the overhead structure may curtail it. The bottom of the balance area at 4166 would be the first target on the counter-trend, inventory correction rally higher, and there should be sellers there. If not, then target the overnight halfback around 4171, and eventually the full gap fill and carry forward that stronger sellers are not present.

A gap-and-go scenario will play out one of two ways today. We can get an early fade that will fail where we would expect (see above), or we could have an initial drive lower that puts the single prints into play right away. The short is either at the balance area low or on a cross back down through the open in the first setup. The second setup is always harder to pull off, as there is less reference to where to place a stop.

On the NASDAQ 100, I am always reluctant to fight a Weekly Expected Move low, so I am covering my shorts this morning and direct my attention to the S&P 500.

Good luck today!

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook – 5/3/2021

AF Thornton 0 Comment

I encourage you to review the View from the Top published last night for an intermediate market perspective. As you will recall, we have been dealing with a balance range in the market (S&P 500) bounded at the bottom by 4166 and the top at 4193. In fact, it is a consolidation that dates back the April 19th peak.

Last Thursday, we had a “Look Above and Fail” per the Balance Rules. Taking that as a cue that the market was ready to roll over, traders took the price down to the bottom of the balance range on Friday, where the shorts piled in, spiking the put/call ratio to a level nearly as high as the fear the ratio expressed at the recent March lows. 

Yet, no new sellers emerged and the market successfully defended the lower boundary. Now those shorts are trapped with bad location. I feel bad for these traders, but the fact that the market held the boundary low is a bullish, contrary indicator (WWSHD – when what should happen doesn’t}.

As I had suspected and written here Friday, these traders now need to buy to cover their shorts. We have already seen this manifested in Globex last night, and price has managed to move back slightly above the balance range, but still below Thursday’s fake-out and Friday’s highs.

So this morning, we will open with a true gap higher, and gap rules technically are in play. As with any true gap, assume there is potential for fade with the caveat that we are opening within a larger balance area (with the fake-out high) which may mute some of the shock and awe. I would shy away from any gap fill setup that is not opening out of range.

So a breakout above Thursday’s all-time high at 4199 is our upside reference. A break above there could take us to 4250. The bottom of the balance area at 4166 is the obvious downside reference with multiple tests at that level. A break there puts 4160.00 into play.

We have the short-covering and early month fund flows on our side today, but don’t lose sight of the lofty levels. Set a disaster stop and be on alert for liquidation breaks. I believe we are finishing the final leg of the rally before the 18-month cycle correction gets underway.

A.F. Thornton

Founder's Trading Journal

View from the Top – 5/2/2021

AF Thornton 0 Comment
Castle Rock, Colorado

Navigator Intermediate Swing Strategy

The month of April lived up to its reputation as one of the strongest months of the year. I harken back to late March, when I counseled that April was likely to be strong, as we came off the 20-week cycle low. It was hard to accept that the market could go higher then, but after sputtering just a bit, it finally gripped. All in all, it was a great month.

Having said that, our swing strategy remains 100% cash, as we profitably scaled out of our positions as the month progressed. The market has made little, if any, progress since April 19th. It could be consolidating to go higher, and it almost tripped a buy signal Thursday. But as long as the market remains under the Algo trigger line (see the chart below), I am not interested in any long positions.

Friday (also the last day of April), the S&P 500 index futures closed right on the 5-day exponential moving average. If you are still in the market, the 5-day EMA can be a good stop line. You could use a violation of the 5-day EMA on a closing basis as your line in the sand.

Unless the index can poke above the Algo trigger line on the daily chart (see below), my intermediate bias remains negative, believing that we are close to an intermediate peak – if not already there. 

Even if we are peaking, this does not mean that the market will head straight down, as another minor low might be possible before the 18-month cycle downdraft kicks into high gear. Nor am I predicting a crash – just a normal, expected, and healthy correction of 10% to 15%. It does not really matter what I expect anyway. I am confident the algorithm will bring us back into the market at the appropriate time – whether it is a normal correction or a crash. The most important principle at work here is to avoid the correction – no matter the depth.

What I can say with some confidence is that the risk/reward ratio is unacceptable to me at this level. Even if the Navigator Algo trigger is tripped back into a long trade, it would still be a tough decision to accept a buy signal given where we are. Key stocks rolling over on stellar earnings last week has not helped my confidence.

My hesitancy in calling the peak tonight is that the market (purely from a price perspective) has not violated anything important yet. It just achieved an all-time high only a few days ago. Also, the extreme speculation registered in January and February is starting to get wrung out. Internal dynamics have mostly held up, so a return to neutral sentiment conditions would substantially improve the forward risk/reward profile. We’re still a ways off from that – so I will still resolve all doubts in favor of the Navigator sell signal.

If you have not already raised cash or at least culled your portfolio of weak hands, you may have a day or two left to do so. The put/call ratio spiked Friday, and I believe many shorts will be trapped at Friday’s lows. These shorts will be forced to buy to cover tonight and tomorrow morning. We already see this occurring in Globex tonight (Sunday). I discussed this in detail Friday afternoon here. I would also expect the usual impact as 401(k) and other payroll contributions positively influence the first few trading days of the month.

Here is a 30-year composite of the May roadmap:

We went into April highly leveraged at nice dips with fear high. We made so much money in less than a week that I pulled the reins in fairly quickly. But it is an important illustration of the rewards that come from waiting patiently to strike when the iron is hot.

Our number one job as traders and investors is to protect our capital. That is especially important at these lofty valuations. The statistical probabilities are in our favor, as long as we live to fight another day.

This market could continue higher in a gamma spiral – but I seriously doubt it would end well. We have to accept that there is a lot of change in the air – politically, fiscally, and monetarily – not only here but globally. All the market needs is a catalyst to light the correction – and there is a generous supply of potential catalysts looming. How about Russia invading Ukraine? China invading Taiwan? How about both at the same time? We cannot know for sure what the catalyst will be, but there always is one.

Funny, I am having a deja vu moment as I write this, I remember using those same words, “all it needs is a catalyst to bring it down,” in late January 2020. I even said, “for all we know, the catalyst could be this new virus.” Let’s see if I can win two in a row.

Friends, even Goldilocks, did not liver forever.

AF Thornton

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