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Good Morning:

  • Futures are lower.
  • Our levels and volatility expectations remain in line with yesterday.
  • Look for a maximum move of 1.19% (open/close) with resistance at 4400 and  4415 (440 SPY equivalent).
  • Support is 4465 (435 SPY). The next support is 4300.
  • The market appears to accept these lower prices without much fear (change in the VIX).
  • This indicates an increase in call options prices relative to puts, despite call volumes (i.e., demand) not increasing.
  • This is due to Dealers beginning to price in the FOMC meeting in early May.
  • The other implication is that protection (puts) may be relatively cheap.
  • Also, the new SPX options for Tuesdays began trading yesterday. Now we will have options tradable and expiring five days a week.
  • Subscriber Charts are up and posted.

Enjoy the day ahead.

A.F. Thornton

This is the S&P 500 Coninuous Futures Contract (June) showing the relevant channels and potential reversal pattern.
This is the S&P 500 Coninuous Futures Contract (June) showing the relevant channels and potential reversal pattern.

Good Afternoon:

  • I continue to wonder how we will all get through this unbelievably insane time we are experiencing.
  • The war in Europe is heating up, and there is no doubt in my mind that the Davos elites will drag us into it. It serves all of their purposes.
  • The lockdown of 26 million in China over the coronavirus baffles me. There has to be something more to it. We know that the virus is no longer a threat. And all the Chinese are vaccinated. Scary!
  • As evident in the chart above, the market ended up massively unchanged today. The Head and Shoulders reversal pattern continues to form on the daily chart. While bullish, it remains incomplete and unresolved. 
  • The early May Fed meeting will be the key, but price could take a direction early.
  • That leaves us at a pivot point with not much edge to determine direction.
This is the hourly chart of the S&P 500 futures - RTH session showing the WEM range and topping pattern
This is the hourly chart of the S&P 500 futures - RTH session showing the WEM range and topping pattern
  • But as can be seen from the hourly chart above, there is also a Head and Shoulders Top completing its measured move inside the intraday time zone. This would be the start of the right shoulder forming on the daily chart at the neckline.
  • The WEM range is also marked. Since the market is unchanged today, we remain in the middle of the range. Remeber, we look for longs in the green, and shorts in the red.
  • The red line coming down is the 5-day EMA, holding the market down. Until we cross above the line, sellers remain in control.
S&P 500 Continuous Futures Contract (June) - 5-minute chart showing Key Levels
S&P 500 Continuous Futures Contract (June) - 5-minute chart showing Key Levels
  • Finally, at the granular 5-minute level, the market stayed right inside the daily expected move boundary and found resistance at the 4400 hedge wall, as pointed out in the Morning Notes. Our pre-announced support and resistance held.
  • The Founders Group took a long trade round trip off the first low on an Algo buy signal for $925 per Emini Contract. The second rally occurred in the last few minutes of the close and after hours when I prefer not to trade.
  • The market was trying to pivot higher into the close, a positive sign, but it ran out of runway.
  • Options expiration should now be complete – so onward and upward (hopefully) to the next crisis.

Stay Tuned,

A.F. Thornton

Good Morning:

  • Sellers remain in control, and we remain in cash.
  • Futures are down 0.3% to 4378, but up from overnight lows of 4355.
  • Today’s volatility should stay high with an implied move of plus or minus 1.17%.
  • Resistance is at 4400 and 4420 (SPY440).
  • Support comes in at 4355 (SPY435), then 4300.
  • Risk remains elevated as long as the market is under the Hedge Wall at 4400.
  • The market may gap down with a True Gap, and both Gap Rules and Spike Rules are in play.

Good luck if you are trading today. I skip a lot of Mondays because they can be weird sometimes. However, the overnight low almost delved into the Weekly Expected Low green zone, so that I will stay alert. Reference the Weekly Navigator Oracle published yesterday for more details.

A.F. Thornton

We come into this week with our models, once again, in cash. I want to cover interest rates and the U.S. Treasury market, then the S&P 500 Index in this week’s issue. I will be focusing on the weekly chart and what it may be telling us. 

The bottom line is that we should be coming into a short-term bounce in the trading range. But we are likely to go lower in the first part of the week before a turn. But make no mistake, the top of this bear is still unfolding.

The hallmark of a trading range is confusion. There is a lot of confusion to go around. That is the primary reason we have a reprieve rally.

My challenge is always effective brevity on these pages. I could write a book on any one of these subjects. But time does not permit, and I would likely stretch your tension span.

So I will cut to the chase. We will start with the U.S. Treasury market and interest rates since that is where all the trouble is. But let’s briefly visit inflation to lay the groundwork.

Inflation

Prices should begin to climb at a slower pace, perhaps around 4 or 5%, for the foreseeable future. You already know that “Putin’s Price Hike” is nonsense, so let’s leave blame aside and focus on the problem.

Inflation results from money printing (now reversing per Quantitative Tightening). Inflating the money supply leads to demand-driven inflation. But inflation is also driven by structural supply shortages caused by the China Virus and, more recently, Deglobalization. 

Deglobalization (bringing manufacturing and other things we previously imported back home) requires a longer-term transition with inefficiencies, higher production costs, and higher prices.

The market is confused, the hallmark of a trading range, because it does not believe that the Fed can, needs, or will raise interest rates or implement Quantitative Tightening at the promised levels.

On the issue of need, the inflation itself is already leading to demand destruction. Consumers cannot afford the higher prices, their wages are not rising to keep pace, and they are cutting back, as evidenced by the Retail Sales figures missing their mark last week. There will be no need to raise interest rates as promised because the economy (and demand) is already peaking.

On the issue of can, the Fed is in no position to sell off its balance sheet as promised in Quantitative Tightening. There are not enough people who want the U.S. paper, as the treasury market is the most illiquid in a generation. Also, the Fed will be competing with the U.S. Treasury itself, which needs to sell $1.5 trillion to finance the latest budget deficit. There are few buyers for various reasons – a subject for another day. 

On the issue of will, the Fed will need to discount treasuries to sell them. The fear is that the Fed could lose control of interest rates and the bond market – perhaps necessitating yield curve controls if they dump into an illiquid market. You can see why the Fed delaying QT is more likely than trying to sell into a market that does not want any more U.S. Treasuries, especially with the elections ahead.

The Fed may eventually cap interest rates with yield curve controls as it realizes it has lost control of the bond market and interest rates.

On the supply side, the transition from globalization to deglobalization will be a painful process. I could write volumes on this. Even though demand destruction will happen from higher prices and a possible misstep by the Fed tightening into a slowing economy, it will not stop the higher inflation coming from these challenging structural supply changes.

With the election on the horizon and the Democrat Party slated for destruction, I would not be surprised to see the Biden Administration implement wage and price controls to make the public feel as if the administration is doing something. Such action will worsen inflation, as happened under the Nixon Administration.

Inflation Expectations Pressure Interest Rates

This is a chart of the U.S. Treasru Bond ETF (TLT) reflecting bond prices and the 10-Year U.S. Treasury Yield Index (TNX) reflecting the interest rate. The price and rate are inversely correlated.
This is a chart of the U.S. Treasru Bond ETF (TLT) reflecting bond prices and the 10-Year U.S. Treasury Yield Index (TNX) reflecting the interest rate. The price and rate are inversely correlated.

Combine the look from the chart above with the inflation discussion. Yields have risen parabolically already, as bond prices have fallen into a waterfall decline (usually when the price is oversold and close to a trough). A rate peak should coincide with the 40-week interest rate cycle peak and resistance at the top of its long-term interest rate channel.

A pause in rising rates is overdue and is likely coming as peak fear precedes the early May Fed meeting and announcement. If rates fall and bonds rise, the stock market will likely follow the bond market higher. The opposite is also true.

Interest Rates Pressure Stocks

This is the weekly chart of the S&P 500 index futures, with key levels highlighted.
This is the weekly chart of the S&P 500 index futures, with key levels highlighted.

With the inflation and monetary policy backdrop, the bullish case is that we are coming down to form the right shoulder of a head and shoulders reversal pattern. The pattern projects the all-time high, likely establishing the top of a trading range.

  • Few expect a rally to get underway – which means the sellers could be exhausted.
  • We have the pattern.
  • Declining volume on the pattern increases the likelihood it is valid.
  • The yield curve is not inverted (measured traditionally).
  • The yield curve actually is steepening – which is not recessionary.
  • The right shoulder should coincide with the 40-day cycle and early May Fed meeting, if not sooner.
  • The February/March lows marked the bottom of at least a 20-week cycle, the principal cycle I monitor. And perhaps the 40-week and 18-month cycles bottomed too.
  • In other words, we just passed through a significant trough and inflection point.
  • It is unlikely that the price would fail here, as the market would instantly crystalize into a bear market, leading to the next major cycles peaking on the left side of their arc. (left-translation).
  • I believe that it is too early for the market to capitulate here. It is more likely to occur this fall.
  • Left translation would be ominous, and I won’t rule it out.

The bearish case is also powerful.

  • We have closed on the lows for two weeks in a row.
  • We fell below all key moving averages, including the 50-week line.
  • We are potentially in an Elliot Wave “3” that could take the price down to 3600 or lower in left translation.
  • Traders could easily get trapped and tricked by the right shoulder referenced above failing.

What to Expect This Week

This is a 15-minute RTH chart of the S&P 500 Index Futures with the projected weekly range shaded.. Selling is advisable in the red zone and buying in the green for the week ahead.
This is a 15-minute RTH chart of the S&P 500 Index Futures with the projected weekly range shaded.. Selling is advisable in the red zone and buying in the green for the week ahead.

The options market predicts a 175-point range for the week from 4300 up to 4475. Neither end of the spectrum would resolve anything, including the symmetrical right shoulder pivot closer to 4200. The probabilities of staying in this range are 70%, but notably, Friday’s candle closed slightly below last week’s range. Volatility sometimes makes the market less efficient, and the boundaries don’t hold.

Note that we have been in an inherently more volatile put-driven market. A lot of protection expired on Friday, leaving the market more vulnerable to a negative Gamma spiral early in the week than in February and March. The price flip to positive delta and gamma would not start until 4445.

On a final note, the Monday and Tuesday following monthly expirations have generally been negative, ending in fairly deep price troughs and reversals. So I expect weakness into Tuesday, where we should get a bounce. As the price action unfolds, I will save the details for the daily subscriber charts and reports.

I hope you have a good trading week ahead. Be careful as anything out of left field (e.g., Russia/Ukraine) could negate this forecast. Stops are critical.

A.F. Thornton

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  • Good afternoon:
  • This will be a short note. I was glad we sold at the Open today for a nice profit. That was the peak of priced on the day. It was downhill into the close.
  • The market left us kind of hanging as to the intermediate picture, but the overall performance was negative and exceeded our volatility estimates after more negative Fed speak hit the tape. 
  • It is difficult to discern much on these big expiration days, as there are a lot of buys and sells to close out option positions, rather than for investment reasons.
  • World events continue to be negative, and the Global Banking system is on the edge.
  • I will cover everything in the weekly outlook over the weekend

Happy Easter!

A.F. Thornton

We exited our SPY and QQQ leveraged call positions in leveraged accounts and all of our cash SPY and QQQ positions in non-leveraged accounts near the Open and at the first resistance levels identified in the morning notes (450 and 347, respectively).

We will reevaluate over the weekend.

Here is the subscriber chart I shared with you this morning, updated for the Open price.

This is the updated subscriber chart from the pre-market notes this morning. The leveks have been adjusted for the Open.

Again, day trading on expiration days is tricky, especially on Monthly Expiration.

A.F. Thornton

Good Morning:

  • No, not crazy. Well, not crazy about the market. As to life in general? Maybe.
  • The wife did accuse me yesterday of “Doomscrolling” and why I should stop. She said being constantly connected has downsides, including getting pulled into a cycle of online negativity.
  • I was dumbfounded. All I have done is point out that we are on the cusp of World War III, the country has the highest public and private debt to GDP ratio ever, inflation is at record levels for my lifetime, mortgage rates have doubled in less than a month, interest rates generally have skyrocketed, we are in an “everything bubble,” and our government is being run by inept, corrupt, lawless and autocratic commies.
  • I think I am very disciplined about what I read, don’t you agree?
  • The morning’s news is that Elon Musk, bless him, has made an unsolicited offer for Twitter to take it private. And Elon believes in free speech. Wow! There is yet hope that we can turn this country around.
  • But since the Deep State literally owns Twitter (and CNN and MSNBC), watching them turn Elon Musk into Donal Trump will be interesting. Before long, he will be a racist, homophobe, extremist who will “threaten our democracy.”
  • By the way, “Threaten our Democracy” should be added to “Putin’s Price Hike” as the new mantra of the talking head lefties.
  • The offer is $54 per share, and it closed at about 46 yesterday.
  • Retail sales came out this morning, and they were lower than expected. Considering both inflation and hoarding, the number is actually much worse than it first appears.
  • Yesterday Treasury Secretary Janet Yellen warned countries, especially China and India, that they better get on board with punishing India and Russia. Otherwise, she may lead the charge to punish the fence-sitters financially.
  • I am sure they are all shaking in their boots.
  • The European Central Bank is talking tough but left rates unchanged. Familiar, isn’t it?
  • And yes, I can be intermediate bearish, and short-term bullish. We need to work runs in both directions on a swing trading basis. As mentioned yesterday afternoon, we will deleverage, at the very least, today. We may go back to cash. A profit is locked in.
  • Futures held a quiet overnight session until the Retail Sales report disappointed.
  • Nevertheless, we look for half the volatility today compared to yesterday, with an implied move of plus or minus 0.67% or 30 points (open/close). Resistance remains at 4450, then 4475. Support shows at 4435, then 4420 (SPY420 equivalent).
  • You will need to adjust my figures depending on where the market opens. If it opens below support, the stated support could become resistance and vice versa. Remember that I write these notes typically between 3:00 am and 4:00 pm PST.
  • But as should be clear from the weekly chart below, 4440 is THE key inflection point at the moment. Acceptance below that level strengthens the bear case. Acceptance above hat-tips the bulls and validates the potential reversal patterns pointing to the old highs.
This is the pre-market chart presented to subscribers each morning showing the trading parameters we expect for the day.
  • I thought you might enjoy seeing the pre-market chart that Navigator Day Traders™ receive each morning. The area bounded by the red and green shaded zones is what I call today’s Sandbox. That is where day traders should play.
  • Try not to decode all the nuances, but focus on the range and where it makes sense to initiate long and short positions.
  • I have to adjust the range slightly for the actual Open, but the top of the red area and the bottom of the green area is the 30-point range from the Open mentioned above.
  • This range is adjusted for gamma. The raw implied move from yesterday’s close is about 24 points for the day. I pay attention to both.
  • Also, note the rising wedge forming on the chart, which may lead to a reversal to lower prices this morning.

This is a pre-market intraday 15-minute chart for subscribers showing today's Sandbox and other key levels for the trading day ahead.
This is a pre-market intraday 15-minute chart for subscribers showing today's Sandbox and other key levels for the trading day ahead.
  • I would suggest a slight bullish bias today, as the continued unwinding of short positions into expiration still gives us some Vanna tailwinds.
  • The Volatility Trigger incidentally is 4440, our key bull/bear threshold. Because we are dancing around it at this writing, it is more difficult to discern direction this morning.
  • But it is monthly and weekly expiration today. Besides taking profits on our existing positions, it is not a great day trading day so I won’t be trading.
  • I will be watching the overnight low at 4432.50 and high at 4455.75 for the initial direction clues. But there is a lot of volume at 4440ish overnight. At least initially, opening below the level might turn it into fairly significant resistance.
  • On the hourly charts, there is a triple bottom at 4380 and a swing high at 4470. Likely, whichever one of those levels breaks calls the next intermediate move. I seriously doubt that will happen today, but carry the levels forward in your narrative.

Happy Easter, and let’s all pray for our country this weekend.

A.F. Thornton

Let’s try a slightly different format for the P.M. notes today. I want the notes to be authentic, but I always tend to filter them and clean them up. I am a perfectionist at my core.

The notes are meant to reflect a page out of my daily trading journal. I set up my day each morning and then evaluate how well the day met my forecast.

The importance of keeping a trading journal cannot be overstated. It helps me refine my process and continue to refine what works and what doesn’t.

So let’s try this more authentic approach and see what you think:

From the AM Notes:

  • Another interesting aspect of inflation comes from money manager surveys wherein a large percentage of money managers still believe inflation is transitory.
  • They are being dragged screaming and kicking into the idea that inflation is sticky and the Fed will get aggressive to stop it.
  • In other words, sticky inflation is still not fully priced into markets, despite what the interest rate markets say.
  • And so, the debate will continue until inflation is fully priced into the markets.
  • And it’s also why Wall Street’s biggest bear, and the author of the monthly Fund Manager Survey, Michael Hartnett, writes that “we remain in “sell-the-rally” camp as the January – February sell-off was the appetizer not the main course of ’22.”

Results:

Today’s positive stock market action confirmed the inflation “transitory” theme. 

Think about it. The market is only down half as much as it was at the February 24th invasion low, yet the fundamentals are worse.

War in Europe is escalating. Interest rates are higher, inflation is more persistent, the Fed speak is more hawkish.

Yet, the NASDAQ 100 and related tech sectors, arguably the hardest hit by the interest rate shock, have Head and Shoulders Reversal patternd forming on their daily charts. The pattern (if it takes) projects a move back to the all-time highs.

No, this is not a screaming buy based on the weight of the indicators. But if we are about to come up through the “middle” of a trading range, we would not expect to find the same confirmation we might see at the bottom or top.

I constantly remind everyone that price action is more important than anything else. The price action does not reflect the current Wall Street negative narrative. 

We practice what we preach – and did some swing buys today.

    From the AM Notes:

    • Yesterday’s put buying increases volatility today. Fully 50% of the SPX, SPY, and QQQ Gamma expires between weekly and monthly expiration tomorrow. 
    • With all the put buying yesterday, we forecast a plus or minus 68-point range from the Open. That is a full 120-point playground for the day.
    • Support is at 4400, then 4375, with resistance at 4420, then 4450.
    This is an intraday 5-minute chart of the S&P 500 Futures. The chart shows that the market stayed within the Sandbox zone and turned from the 4450 resistance announced in the Morning Notes.
    This is an intraday 5-minute chart of the S&P 500 Futures. The chart shows that the market stayed within the Sandbox zone and turned from the 4450 resistance announced in the Morning Notes.

    Results:

    The stock market rose 58 points from the open, just below our 68-point target and within today’s Sandbox (bounded by the red and green shaded areas). But note how we could predict the greater volatility today with the additional Put Gamma added yesterday. Yesterday’s range was about half the range today.

    Ultimately, the market stalled at the 4450 identified resistance, also the Hedge Wall and Volatility Trigger line.  But as predicted, 4400 provided support (the market opened at 4393). The market hesitated at the 4420 First Resistance but punched through to the second level.

    The exact chart you see above was provided to Navigator Day Trading™ subscribers pre-market, only the price was blank and filled in throughout the day as if it were following our morning script.

    The market tends to follow our Morning Scripts more often than it doesn’t. But nothing is perfect, which is why we use stops.

      • With volatility elevated from earlier this month, traders are unlikely to carry many short-dated puts over these next few days and into the long weekend.
      • Therefore very short-dated volatility will likely come for sale (plus the back-to-back expirations). Selling the volatility drives Vanna.
      • The Vanna tailwinds should give us a bullish edge into tomorrow’s expirations, but we think this Put interest removal takes away some market support for next week, particularly Monday.

      Results:

      As expected, the market performed bullishly, with the Vanna tailwinds helping the market climb over 1.3%. The market went nearly straight up from the Open in a positive Gamma / Vanna spiral. 

        Conclusions

        We believe the market is pivoting today, possibly generating Head and Shoulders Reversal patterns in technology (QQQ and XLK), technology-related sectors (XLC), and consumer cyclicals (XLY). A bit looser rendition of the pattern is visible in the S&P 500 (SPY) and the Dow (DIA).

        Growth stocks and technology sectors tend to be interest-sensitive. This potential turn higher likely coincides with interest rates hitting short-term peaks at their long-term resistance lines after the latest parabolic climb. Surely, interest rates are due to pause here, even if they will resume the climb later.

        Take a look at the chart below of various U.S. Treasury securites, courtesy of Kimball Charting Solutions (interest rates are inverted – higher rates as the lines fall and lower as they rise):

        This chart shows the current interest rates (inverted) on the 2,5,10, and 30-Year U.S. Treasuries. All of these rates should pause here and take a break here (and their corresponding bonds should find support).
        This chart shows the current interest rates (inverted) on the 2,5,10, and 30-Year U.S. Treasuries. All of these rates should pause here and take a break here (and their corresponding bonds should find support).

        So What Did Today’s Session Add to the Narrative?

        First, the Founders’ Group executed two Navigator Swing Trader™ buy signals using May 20, 2022, SPY and QQQ at-the-money calls (or buying the cash SPY or QQQ ETF for non-leveraged accounts). We allocated 40% of our portfolios to each position.

        The QQQ buy came around 9:40 AM EST as the QQQ broke to the upside of a reversal pattern at 340.50. We bought the SPY around 11:40 AM EST as it crossed back up and through the WEM low at 439.

        • The hardest part of what we do sometimes is trading against the prevailing Wall Street Narrative and we did so today. Partly, this is because In the new paradigm, stocks and bonds are correlated – meaning they generally will rise and fall together. In the past, bonds would rise on any scare when stocks would fall and vice versa.
        • Today’s equity buys could have been driven by traders anticipating a short-term peak in interest rates. The next Fed Meeting is still two-weeks out – so there is still some runway ahead of us. Two weeks can be a lifetime in these volatile markets.
        • Today’s buys could also have been triggered by Vanna tailwinds or other options expiration-related distortions, meaning we would need to sell the options tomorrow. 
        • We likely will take profits on the options tomorrow, perhaps switching the leveraged accounts to cash ETF porisiton. I don’t want to have the theta premium decay of a three-day weekend anyway. I would rather reposition on Monday.
        • Regardless, the stock market is behaving bullishly for now, and bonds are at long-term support. If these two asset classes pivot higher here, the Founders’ Group will benefit. Stops are already above break-even, so we have nothing to lose.
        • Moreover, and focusing just on the reversal pattern in the QQQ, if the pattern completes, it projects a measured move to the all-time high from last November.
        This chart shows the NASDAQ 100 ETF (QQQ) with a potential Head and Shouders Reversal pattern forming at the 50% rallly retracement inflection point and the Founder's Group's new long entry this morning.
        This chart shows the NASDAQ 100 ETF (QQQ) with a potential Head and Shouders Reversal pattern forming at the 50% rallly retracement inflection point and the Founder's Group's new long entry this morning.
        • Wouldn’t that catch a lot of investors off guard?
        • But if the pattern prevails, I would point you back to our Current Stock Market Thesis.
        • Using the 1970s, the Dow Jones Industrial Index (a potential model for the current stagflation environment), went sideways for years. I have been predicting the current market could emulate a similar pattern and go sideways in a trading range. Perhaps we see that prediction unfold.
        • Whether it does or doesn’t, we will scalp some gains here. Until the stock market sustains new all-time highs, the bear isnt hibernating.
        • A move back to the old highs and then another reversal would confirm my suspicions.
        • We haven’t achieved the sideways pattern yet and we are clearly speculating, but keep it on your radar.
        • For now, our summary narrative remains that we have a bullish tape, at least in the short-term. And it may be confirmed by rates potentially peaking short-term.
        • And we are taking advantage of the fact that the majority of Money Managers are still predicting transitory inflation, and don’t believe that the Fed can, will or even needs to do what they have promised to fight inflation
        • The plan is to take our leveraged profits tomorrow, perhaps retaining cash positions in the SPY and QQQ ETFs. 
        • Tomorrow is the last trading day of this week, and we will reevaluate over the weekend to potentially add leverage back on Monday.

        What do you think? Do you like this new format? Email me directly and let me know your thoughts.

        A.F. Thornton

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        Good Morning!

        • Another interesting aspect of inflation comes from money manager surveys wherein a large percentage of money managers still believe inflation is transitory.
        • They are being dragged screaming and kicking into the idea that inflation is sticky and the Fed will get aggressive to stop it.
        • In other words, sticky inflation is still not fully priced into markets, despite what the interest rate markets say.
        • And so, the debate will continue until inflation is fully priced into the markets.
        • And it’s also why Wall Street’s biggest bear, and the author of the monthly Fund Manager Survey, Michael Hartnett, writes that “we remain in “sell-the-rally” camp as the January – February sell-off was the appetizer not the main course of ’22.”
        • Yesterday’s put buying increases volatility today. Fully 50% of the SPX, SPY, and QQQ Gamma expires between weekly and monthly expiration tomorrow. 
        • With all the put buying yesterday, we forecast a plus or minus 68-point range from the Open. That is a full 120-point playground for the day.
        • Support is at 4400, then 4375, with resistance at 4420, then 4450.
        • With volatility elevated from earlier this month,  traders are unlikely to carry many short-dated puts over these next few days and into the long weekend. 
        • Therefore very short-dated volatility will likely come for sale (plus the back-to-back expirations). Selling the volatility drives Vanna.
        • The Vanna tailwinds should give us a bullish edge into tomorrow’s expirations, but we think this Put interest removal takes away some market support for next week, particularly Monday.

        •  Subscriber charts are up.

        Be careful today!

        A.F. Thornton

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        Word of mouth is crucial for growing our trading community and providing education and support for your trading decisions. Please feel free to share this with your friends and family if you find the information beneficial.

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        This chart breaaks down the four primary measures of inflation after adding in today's CPI numbers.
        This chart breaaks down the four primary measures of inflation after adding in today's CPI numbers.
        • Let’s first knock out the inflation report, now that I have had a chance to dig into it.
        • The top line CPI number was horrific but in line with consensus expectations. The core numbers (the elements of inflation that are less volatile) came in a bit lower than consensus.
        • The CPI and PCE have slightly different baskets and methodologies derived from two different branches of government. The PCE has been more accurate and the Fed seems to prefer it.
        • And some simple math indicates real hourly wages are down again for March, with inflation this high. That makes 13 out of the last 15 months that real wages have fallen.
        • The fall in real wages coincides with the Biden regime taking office. I thought they cared about the working class?
        This chart shows the S&P 500 Index today (black line) with put activity (blue line) and Call activity (gold line).
        • The blue Put line rising all day indicates a lot of Put selling. Usually, this positively impacts the market as Dealers have to buy futures to hedge their portfolio deltas. But the market rolled over after the initial morning pop.
        • I don’t have to explain the morning rally, as it fizzled by the end of the day. But as indicated in the morning notes, short-covering likely drove the initial gains (short the rumor buy the news). 
        • Nevertheless, the index should have continued to rise. Options activity does not always influence the market, but today’s aggressive Put selling often coincides with a short-term bottom.
        • So the market remains wandering in the desert between 4400 and 4500, and the influence of expiration this month looks neutral to slightly positive for prices.
        • So I will go out on a limb to suggest that the WEM low at 4400 will hold this week, and we could see the price pop back up to test the neckline of the topping pattern discussed this morning at 4475.
        • The next catalyst will be JP Morgan Chase’s earnings tomorrow morning. The forward guidance will be the most crucial driver, whatever the earnings may be.
        • I don’t think the crowd expects banks to do well with an inverted yield curve and a recession potentially ahead.
        • Sadly, the situation continues to deteriorate in Europe, with Russia sending warships toward Finland,  another country that wants to join NATO with Austria. Both countries border Russia.
        • It reminds me of one of the most potent axioms I learned when I was younger – “What you Fear, you Create.” Putin should take a page from that book.
        • But I am frustrated by the lies and manipulation emanating from the information stream.
        • It is tough to discern truth from falsehoods, especially with the Biden regime.
        • But I give the left and the Biden regime credit for discipline, if nothing else. They repeat all the same talking points like a page out of the Stepford Wives (dating myself again).
        • Truly, if I hear another leftist repeat “Putin Price Hikes” again, I will throw something at the television. Are all these leftists on MSNBC and CNN robots?
        • They must believe we are stupid, and maybe we are. But it isn’t very respectful.
        • Did Joe forget we were all putting gas in our cars and buying groceries long before Russia invaded Ukraine? How about the price of houses, used cars, lumber, etc., long before Putin invaded his neighbor?
        • Nice try, Joe! Why don’t you let our oil and gas industry out of its handcuffs, and we will starve Putin of his primary income? The last time we did that, it bankrupted the Soviet Union.
        • If Russia does nuke us, I hope they start with Washington D.C. It may be our only chance to recover.

        A.F. Thornton

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