Archives 2021

S&P 500 Exit at 3883.50

We stopped out at 3883.50 on the S&P 500 Emini position in the core Navigator Model portfolio. That leaves us with a 94% cash position, 3% position in the XLE 40 calls expiring March 19, 2021 (paid $286 per call), and a 3% position in the XLF 30 calls expiring on March 19, 2021 (paid $125 per call). The chart below summarizes the year-to-date trades so far in our $10,000 account started on January 1st: 

Of course, the year is young, and there will be much to navigate before this year is over, comrades. And, as our regulators caution, past performance does not in any way ensure future results. Which begs the question – why does it matter at all then? Perhaps a quick statement about past performance as meaningless will get me a discount on my next tax return?

A.F. Thornton

Sell Signal – S&P 500

I am issuing a sell signal to the Founders Group on the S&P 500 index position at the open this morning to take some profits. We have a substantial, short-term profit and I don’t want to fight the market-makers today who may try to drive the market into the WEM expiration level at 3830. This is a short-term concern, and I am being hypervigilant. I believe that the market will continue to move higher next week. I will reposition at the breakout level around 3850 if possible.

Party On…

Navigator Algorithms – 100% Invested

Yesterday, the Nasdaq 100 and S&P 500 indexes hit new all-time highs, with the S&P 500 index perhaps on its way to that final 3900-4000 target I set last November when we broke out of the consolidation. Given the double-wide volatility swath set by the options market makers this week, this is a truly amazing feat. Keep in mind that the S&P 500 futures tagged 3650 only last Sunday night.  At 3881, this writing underscores concerns that the market continues in an irrationally exuberant, blow-off stage. 

Today, with the S&P 500 index having blown through the options Weekly Expected Move (WEM) high at 3830 yesterday, the gains could accelerate as the options market makers race to neutralize their deltas before the close. Recall that the options market makers blew the WEM low last week, with the market closing well-below the level set for last Friday’s expiration. 

I need to do a primer on the WEM to explain this to everyone better, but the influence of weekly options expirations on the markets cannot be understated. When the market escapes the range set for options each week, one needs to be extra vigilant in the attendant volatility. Billions of dollars in losses are at stake when these weekly levels and ranges are exceeded before the Friday close.

Of course, today is far from over, though the futures are net-long overnight. Market makers may attempt to drive the market back towards the 3830 expiration before the close to minimize their losses. I intend to issue a sell signal at the open to grab some of our own gains today to help them out. Since 3850 acted as a barrier for a few weeks, the level might be retested today as traders adjust inventories before the weekend. A retest might also be a place to add to positions.

Stay tuned.

A.F. Thornton

Core Navigator Buy Signal

We just issued a Navigator buy signal to the Founders Group at 3835.50. Since we already have 6% allocated to XLF and XLE calls, that leaves a 96% position for the S&P 500 index. As always, do your own homework and make your own decisions.

Given recent volatility, these positions could be very short-term compared to normal, swing-trading holding periods. So if you are keeping track of my decisions, stay attentive to your emails or check this website periodically.

Dispersion

Navigator Algorithms – 97% Cash – 3% XLE

It is time for another deep dive. This weekend, I will be covering the shifting relative strength of small caps and international markets. As you can see from the chart below, we are in the early stages of these relationships turning positive (shaded areas are recessions).

The steepening yield curve, strength in oil and commodity prices, weakening dollar, and an eventual reassertion of the uptrend in gold contribute to these relative strength shifts. 

In addition to the XLE, the financials (e.g., XLF), particularly banks (e.g., KBE),  are poised to benefit from the steepening yield curve. The inflationary pressures also stand to support relative strength in the materials sector ETF (XLB).

The short-term problem is that we are still dealing with an overbought, euphoric market trying to pass through a 40-week cycle correction zone. I will sort through the issues over the weekend, but you can see my thought process and potential investment targets.

For now, the Nasdaq 100 led us off the bottom of the Reddit downdraft, but the breadth is narrow, and the other major indices are not confirming the recovery as yet. Man cannot live by tech alone, as I often say. Of particular concern are the lagging Dow and Transports. Another schism to be resolved over the weekend. 

Morning Plan

As to the core S&P 500 index and Navigator Algorithm, the value area was unchanged yesterday, signaling that the recent higher prices are being accepted – albeit with significant breadth concerns and non-confirmation of all major indices. The gap below us remained unfilled yesterday, another sign of strength.

The market will open within the past three days’ range, with prices very close to the overnight high. Regular session sellers were muted on yesterday’s expected liquidation break, and sellers also failed to take control overnight.

So the path of least (or perhaps lesser) resistance remains higher, with the breadth caveats mentioned above. Remember, a break above the February 2nd high will be a breakout from two days of balance and could trigger a Navigator buy signal. A look above and fail would bring us back to the lows of the past few days around 3800 and potentially into the unfilled gap from there.

With cyclical down forces in place until mid-February, we are still in a caution zone for swing trading, though I will continue to take advantage of the short-term swings in the Founders Group.

Despite the generally overvalued, leveraged, and euphoric market, opportunities are everywhere beneath the surface.

Pre-Market 02-03-2021

Navigator Market Algorithms – 100% Cash

Pre-Market Outlook

Navigator Core Algorithm Status

While the short-term bias is up, I am expecting a liquidation break sometime in today’s session. There is a FOMO (fear of missing out) piling on effect with very little long liquidation in this run so far. Overnight trade was balanced with a small distribution that is very wide right at the volume point of control from yesterday around S&P 500 3829. 

As traders seem comfortable with these higher prices, we could easily see more backing and filling in the regular session around the POC (point of control) area. If so, set targets and stops smaller and look for responsive trading today. There is no potential for a change in tone unless the potentially unfilled gap comes into play. Outside of that scenario, my bias is long.

Some Musings

Navigator Alogorithms - 100% Cash

I have mentioned several times in these pages the uneasy feeling I have been experiencing since I woke from an induced coma in July. Granted, a freak allergic reaction that required intubation for three days on a respirator left me a bit disoriented. And it was quite an experience to awake in a hospital after I thought I had been crouching in the corner of a dark room in front of what I thought was a movie screen. In short, I thought I was dead, an experience I hope to share one day. 

The uneasy feeling, however, has not left me. It is as if I woke up in an alternate universe. The steroids they give you in the circumstances inhibit sleep. After I emerged from the coma, I was up for four days straight, watching the BLM and Antifa riots unfold all day. When you can’t sleep, read or surf the Internet due to anesthetic amnesia, you end up watching the same shows repeatedly at night. Echoes of Orwell’s “1984.”

On one night, Israel (or someone else) was taking out Iranian nuclear facilities. The next night one of our destroyers apparently was nose to nose with a Chinese destroyer in the South China Sea. No doubt the steroids and other medications enhanced the experience, but the news on television seemed dystopian nonetheless.

Sure, this universe is similar to the one I left, but there are certain quirks, just enough to make me suspicious about where I landed. The feeling is like riding in a falling elevator, but it never stops on a floor. If you have ever seen the show “The Man in the High Castle,” – it somewhat describes this new universe. In the show, Germany and Japan win World War II. The show is set in an alternate America in the early 1960s, dominated by Nazi Germany and Imperial Japan. That is how it feels to me here. No offense intended to those of you born here.

Perhaps the crescendo comes next week. This universe is headed for a dangerous (and I believe) unconstitutional impeachment attempt. In fact, the constitution is being shredded so fast you will be lucky to remember it. Can you really imagine if a precedent is set to impeach and castrate a despised opponent after they leave office? What comes next? 

Then I ask myself, If your Trump was so resoundingly defeated in the popular vote and Electoral College, what is the establishment so scared about? If he runs, can’t they just beat him again? Shouldn’t his next defeat be even more decisive after the left implements their new, utopian, and outstanding programs? Won’t all of you feel better after you sock it to those billionaires and corporations with new regulations and taxes? Think of all the new jobs!

While we are on the subject, what is with all the walls and soldiers around the Capitol and related buildings? We did not have that where I came from. I thought walls didn’t work in this universe – like on your southern border. Maybe all the people cheering these new, popular programs and taxes have too much enthusiasm. With all the rock stars in Congress, security is needed for this concert of bliss. After all, you haven’t seen the population this happy in such a long time!

If I even give some credence to the assertion that the election here was manipulated, it is not a big step to seeing the rest of this story unfold. It would seem that the election was an important part of a much larger and longer-term plot. The victors are not behaving like winners, but maybe that is part of the distortion that makes me uneasy in this new paradigm.

By not stopping the summer riots, the folks here conceded that mayhem was the new normal. By letting the rioters free afterward, without charges, good people all around lost hope. Don’t worry though, 177 Trump protesters at the capital have been jailed and are facing 10-years in prison each. Where I came from, we tried to dispense justice equally. We had this statue of a lady balancing scales. This is what I mean about this universe. It is similar, but with these twists. Here, justice is different depending on your caste, class, party, or who you know. 

I also find it interesting that the names of all the deplorables caught up in the riots are widely published, but I can’t find the names of the anarchists who obviously pre-planned the Capital breach? I cannot find the names of the Antifa or BLM protesters either. All but one have remained anonymous. The true organizers of the Capitol riots have never been charged, including after the January 6th ‘insurgency.’ Even your New York times acknowledge their existence. Where I come from, we would say the “fix” was in. This is what I mean. Everything kind of looks the same here, but there are weird twists like this. 

The other day, I was trying to find the name of the officer who shot Ashli Babbit, one of the Capitol protesters who died. I guess it is a secret. That is unusual because when I first got here after the coma, they were publishing officer names left and right. I learned the police were bad, and you needed to defund them. 

But now I just learned that an officer who died in the protest would be laid out and honored in the Capitol right before the impeachment trial next week. Bless this officer for his service – and this is definitely a step in our direction. But the schism in how these officers are treated here is another anomaly. I am also wondering why they waited for this display until right before your impeachment trial?

Does anyone have any idea who led the charge into the Capitol building? Has anyone from your 2008 Financial Crisis been arrested? Have they been charged? Are they in jail? Have their Lear Jet parking fees at least been raised?

In this alternate universe, free speech – the hallmark of the America I came from – is under vicious assault. Average people supporting traditional values are being labeled as insurrectionists. Reporters on the leftist channels are taking lawmakers through “struggle sessions” to coerce them to adopt the “party” line that there was no election fraud. Nothing to see here…

People I previously respected in my world are advocating (unapologetically) for communism here. The country here is drowning in lies. Where is Walter Cronkite when you need him? Our country seemed so simple – so innocent. Here, I see friends set against friends and family members against one another. Children are turning their parents in for attending the Washington D.C. protests. In my world, we saw this in Mao’s Communist China.

We used to believe that the establishment actors in Congress were just incompetent losers and fools. But here, I watch in horror as they get away with every outrageous ploy. I am confident you will never see indictments for the Russian collusion plotters or the Ukrainian impeachment sham. Corruption is the soup de jour across party lines here. Frankly, I wouldn’t trust anyone in power here. Attorneys General, White House Chiefs of Staff, the FBI, the CIA, and the Justice Department are impotent at best. At worst, your leftists have taken full control.

One other quick gripe – we hid under our desks in my universe for nuclear drills when we were kids.  We hated communism. Yet here, communism is coming in through the front door with no shots fired. It appears you will be surrendering your sovereignty to the globalists’ Great Reset. It would all sound like a conspiracy theory in my old universe, but I am running out of them here because they all come true. We call these bad dreams, but at least in my universe you wake up and it isn’t true.

As to the financial markets, my friends over at Kimble Charting Solutions have a way with words and charts, as you can see above. Some short-covering over the past few days gave us an awesome bounce off the 50-day line. We have only seen the 50-day line three times since March. With some follow-through, we might stick our toe back in the water. The market could be in a blow-off stage bubble, at least short-term. Alternatively, maybe everything is just fine. I am not sure how to interpret it in this alternative universe.

Where I come from, we would be really, really careful here. It is a giddy, strange crowd out there. A bunch of mad people have been buying stocks on Reddit – to punish Wall Street and Hedge Funds. Their loyal broker, Robinhood, apparently worked under cover. You see, they were actually Wall Street themselves after all. The wolf in sheep’s clothing. Where I come from we like to buy stocks to make a profit. We protest in other ways. Anyway, I am learning the nuances here. But I am still going to be careful.

Thanks for allowing me to ramble a bit – I needed to get this off my chest. We will leave it there for tonight. I will dabble in the technicals tomorrow.

What I can say for sure now is that buy and sell signals will come more often in this volatility. Holding periods will be shorter. You will have to be attentive if you participate – this is a fast market. I wouldn’t blame anyone for sitting this one out for a while. 

Then again, perhaps you are all used to this behavior in this universe. In mine, it would be considered a high-risk environment.

A.F. Thornton

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