Archives 2021

The Navigator Algorithm drifted into a sell signal today, but we do not have a significant cycle trough presenting until the end of the month. Even that one is relatively minor compared to the October low. Our best judgment is that the market will go sideways or experience a relatively minor dip here. And, we may yet get another leg up before some additional weakness presents late in the month.

Of course, the market will do what it wants to do, so we will be monitoring the price action carefully before making any decisions. We are 100% in cash at the moment. But there is no harm in communicating a heads up. The IShares Russell 2000 Small Company Index ETF (IWM) and Invesco DB Commodity Index Tracking Fund ETF (DBC) are on the Founder’s group radar to pick up in this pullback.

Even if the major indices continue to correct or move sideways, the IWM and DBC could still move higher.

We will be focusing on December 17th monthly at-the-money calls for both potential opportunities. The DBC calls are less than ideal, as they are thinly traded, so the spread to buy and sell is high. But liquidity is not an issue if you are buying just a few of them. It is, however, a bit more of an expense hurdle on both ends that digs into profits (or expands losses if the investment fails).

Buying shares of the DBC ETF outright is the best course if you don’t need the call leverage. The initial upside target is 22.75, or a 6% gain from today’s close at 21.48. Hopefully, we can enter at a lower price, but the ETF has not given much ground since it bottomed last Thursday.

The DBC can serve as a good inflation hedge in this environment. The fund invests in a diversified basket of commodities, including both agricultural and energy. This exposure could be critical in the weeks and months ahead. If money managers shifted even a small allocation to commodities, this asset class could move parabolically higher. In this regard, acquiring some shares outright with a longer-term hold plan could be advisable.

We will keep you posted.

A.F. Thornton

Look for the trading range between 4690 and 4720 to maintain in the next few sessions. Overnight inventory is net short, so that we might see a brief short-covering rally at the open. And yesterday’s price action did not get too far above Friday, with value (where 70% of the volume occurred) overlapping Friday’s volume.

In simple terms, the market slowed down a bit near the roundie (4600). This behavior is not necessarily negative nor unexpected. The Fed meeting starts today, and the announcement on interest rates and whether the Fed continues their bond-buying program (Quantitative Easing) comes tomorrow afternoon.

Perhaps a bit surprising to me is that the market has rallied hard into the meeting and announcement. The consensus expects the Fed to leave rates alone but announce a tapering of the Quantitative Easing program. Normally that would be negative for the markets. One must believe that the insiders know that the Fed will not change its policies, or the market likes the news. Another possibility is that evidence of a slowing economy takes the pressure off the Fed in the short term. So the party might go on for a couple of more hours. Who knows?

Otherwise, this is a good area to pause. We have achieved all of my original targets from the October low. So the upside is blue sky and somewhat undefended.

The first gateway to the north is the overnight high at 4610, which opens the door to yesterday’s high at 4612.75. Finally, 4619.75 is the Globex high from Sunday night. Conquer that, and happy days are here again.

I get a bit more nervous if we give up the roundie at 4600. That level is the true battle here. We have double POCs right below that level which should provide support. If they don’t, I think the idea of a sell-off for a couple of days becomes realistic. I will be using yesterday’s regular session low at 4586.50 as the line in the sand today. I will be short-term bearish below that line.

A.F. Thornton