Founder's Trading Journal Morning Notes – 5/17/2022 May 17, 2022 AF Thornton 0 Comment An Interesting Chart from Bank of America - What if we are still in a secular Bull Market? Good morning:Lack of follow-through marred the latest rally attempt yesterday, though it looks better this morning with a 1% overnight move higher putting Gap Rules into play this morning.As always, use the Gap fill/no-fill as your first sentiment barometer.Resistance is at 4095 followed by 4115 (SPY 410). Support shows at 4015 (SPY 400).There is no obvious catalyst for the overnight recovery. This setup feels a lot like that of late April, when the market (also net short) launched higher into VIX monthly expiration (tomorrow morning) and carried into a sizable April monthly expiration on the following Friday. Back then, markets rallied on Tuesday and Wednesday, pinned on Thursday, and sharply reverted all their gains on expiration Friday.Until proven otherwise, this move up should be seen as a short covering rally. It could extend into Friday, but it may be subject to quick and violent reversals. Subscribers will continue to receive signals to move their stops up with the rally.Our swing model subscribers are in a buy signal at 4019.75. We will move our stop up to 4033.25 this morning just to ensure a profit. Consider a $99 monthly subscription as these subscribers are enjoying a phenomenal year – our initial $10,000 starting balance is now just below $50,000.The main obstacle to a sustained rally is to conquer former support around 4100 – 4150 – now resistance. And we need to see real, institutional buying not merely short covering.A reversal pattern on the 24-hour charts indicates a measured move as high as 4200. And though I don’t expect new highs, I believe that the market could recover up to 4300 before it stalls out again. This chart shows a Head and Shoulders Reversal Pattern on the 24-Hour Data Hourly Chart For now, the first target is the 21-day line or mean at 4150 or so.Use this rally to cull your portfolio holdings – this bear is not over. You cannot go wrong if you are selective. Quality rules in these kinds of environments. Hard assets and real earnings are especially valued now.As mentioned yesterday, the street is net short (also in short-dated options) expiring at monthly/weekly expiration on Friday, so Vanna flows should provide positive tailwinds this week.All of this is part of bottoming the 80-day cycle – which is due to bottom between now and early June. If all goes according to plan, the next phase of the bear will start in late summer into the usual September/October seasonal weakness and 40-week cycle trough.We get retail sales and industrial production numbers this morning which will give us some additional insight into the current quarter’s GDP. Existing home sales come out later this week.We also have some of the big retailers reporting to wrap up 1st quarter earnings this week.By Friday, we should have a good idea of how strong or weak the economy has become. Bad is good right now, as it takes the pressure off rate increases. 10-year rates seem contained at the 3% resistance level for now.Geopolitics continues to be a wildcard – but do not forget that a rally catalyst would ensue if Russia does back off its aggression.Let us see where this movie from the depths of market despair takes us. There is no lack of positive and negative opinions relating to the matter – that is for sure. Click to Learn More About Navigator™ Trading Subscriptions Share with Friends and FamilyWord 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. Facebook Twitter Email LinkedIn
Founder's Trading Journal Morning Notes – 5/16/2022 May 16, 2022 AF Thornton 0 Comment Good Morning: I will be delivering the “lite” version of my commentary this week, as I am losing my mother to the vaccine and will be indisposed while making funeral arrangements and attending memorial services. Hauntingly, it was exactly a year ago (May 22nd) that I lost my father-in-law to the vaccine. The people and companies behind these vaccines are nothing short of evil. People used to think I was nuts when I questioned the vaccines, now it is all coming out how bad they are and how the side effects were covered up. My mother got the China virus twice after she had her vaccines. Now we learn that Fauci and the rest of the NIH crew were getting $350 million in secret royalties to promote them. Last Thursday’s intraday low looks like a tradable pivot from oversold levels, crowned with a short-covering rally into Friday’s close. We have a Navigator Swing buy signal on Friday’s close, but since it hung by a thread, I don’t want to issue the signal without follow-through today into the close. Otherwise, this is likely to be another brief short-covering rally that could be a bull trap. Nothing else has materially changed, other than the fact that China’s economy appears to be collapsing under the weight of their lockdowns, and the collapse is sure to have an impact on the global economic outlook as well. 4000 is still the key pivot line until expiration on Friday. Resistance remains at 4100, with support at 3950, then 3921. There should be some support from the options market into Friday’s monthly expiration, with 4000 acting as a pinning or mean-reversion level. So the recent lows should hold, absent further “unknown” negative news. A.F. Thornton
Founder's Trading Journal Morning Notes – 5/13/2022 May 13, 2022 AF Thornton 0 Comment Good Morning:Some relief is in order this morning, as market makers appear to be drawing the S&P 500 back to the WEM low around 3985.The bond market, leading the rout in stocks, bottomed Monday and started climbing out of its hole.There could be a short squeeze into the close today before the weekend.I might show up for that, but otherwise, with the open interest around the 4000 strike, I would expect the market to pin around that number today, which is why I rarely trade Friday expiration.The real action promises to be when the monthly expiration arrives a week from today.I have to believe that everything known is already priced into the stock market – and what is known is unpleasant for stocks.What worries me is what is not known. For example, the CryptoCurrency class is having its meltdown – as I knew it ultimately would. What else is hiding under the rocks with all the global currency turbulence?I will probably sit out today. A lot of the drawback to the WEM low has already manifested overnight.Look for support at 3975, then 3920. Resistance is at 4000, then 4020.The market is oversold, and a bounce is overdue. But it is a bear market nonetheless.It would be best to use rallies to cull your holdings down to the bare minimum that you are willing to hold through further and deeper declines into the fall (no pun intended).Make sure you are serious about holding, as you don’t want to change your mind and sell at the bottom.Have a great weekend.A.F. Thornton
Founder's Trading Journal Morning Notes – 5/12/2022 May 12, 2022 AF Thornton 0 Comment This is a Weekly Chart of the S&P 500 Index Futures showing support and resistance. Good Morning: I don’t mention it every day, but the Navigator Swing Strategy remains in cash with an extraordinary year-to-date return. We are at that stage where a capitulation or waterfall low is likely to end this first bear phase, and I would prefer we enter either during or after that phase is complete. There are respectable arguments on both sides of the market. Some believe that this market is ripe for a 1929 type of crash. Even I could argue for a top to bottom 75% decline if the market were to tag its 100-year channel bottom. Nevertheless, I will vote for the middle ground. It amazes me that I have not had to tweak our Market Thesis since I first published it in January. The market has made the measured move for a “correction” at current levels. And perhaps the WEM at 3985 can draw prices back up before tomorrow’s weekly expiration. Going lower beyond current levels (the market is at 3896 at this writing) would find support clusters around 3750 and 3500. I know those levels run deep, but they are what they are. At 3500, we are still well above our ultimate target of 2500, where I would expect the bear to end. But I am unaware of any “May” stock market crashes in history. They usually arrive in October. And given where we are and the literal washout in negative sentiment, I am still viewing this decline as phase one, with some relief due at any moment. The street is mega-short, and I doubt the crowd will be correct. Lopsided positioning such as this is ordinarily unsustainable. Yet I still ponder what will rise from the depths of hell to more downside. I suspect that a currency issue is in the offing. We have already discussed the crashing Japanese Yen, but this has also put pressure on the Chinese Yuan. Yesterday, even Hong Kong started tweaking its local currency. Treasuries started to find some footing yesterday, and that may be the first indication that a short-term bottom is close at hand – unless it is a flight to safety. There is considerable chart resistance to the 10-year rising above 3.2%. The good news is that I don’t care what has happened or even what will happen, as my focus is today and what is in my windshield. I know a bottom when I see it, and I will communicate it to subscribers in real-time. And by the way, China is in deep, profound economic trouble between lockdowns and its imploding real estate market. They were in a financial crisis long before Russia invaded Ukraine. Another sign that a low may be close is the market taking the generals out to the woodshed. Mighty Apple is the latest (and perhaps the last) to take the fall. I am fortunate to have an extraordinary partner in this endeavor. Michael is nothing short of a software genius and problem solver. We started this endeavor to manage our family funds. On Monday, we discussed how vital patience is in this and most endeavors. Right now, we need to be patient and wait for our moment, especially from an intermediate perspective. We are day trading with subscribers, so there are benefits to the volatility if you know what you are doing. But taking a longer-term position is not advisable until that moment arrives when the crowd caves. We await that moment. So let’s find a tradable bottom. This market is in capitulation territory. I am looking for resistance today at 3900, then 4000. Support is at 3865. We are so deep into put territory that negative Gamma will start to decrease at 3800.Gap Rules are applicable this morning. Use the fill/no-fill as your first clue to directional bias. Stay tuned – we are here to help in any way we can. A.F. Thornton
Founder's Trading Journal Morning Notes – 5/11/2022 May 11, 2022 AF Thornton 0 Comment Good Morning:The top line and core inflation numbers came in at 8.3% and 6.2% for April, slightly higher than Wall Street’s consensus expectations.The market tamped down a pre-market rally on the heels of the report.So nothing has changed much from yesterday. Support is strong at 4000, and then the overnight low around 3950. Resistance is firm at 4100.Of course, if the market spends much time below 4000, it becomes resistance.We expect another 100 point range from the open today – meaning 50 points plus or minus the Open.The WEM low around 3985 will be a magnet until the close (weekly expiration) tomorrow. But there is little (if any) support below 4000 from the options market and a spike or capitulation is possible if prices start to find acceptance below this important level.Look to 3950 as the line in the sand. Otherwise, a short-covering rally remains a distinct possibility as the day gets underway.I will have more to say later today, as I have a chance to take a deep dive into the inflation statistics.A.F. Thornton
Founder's Trading Journal Morning Notes – 5/10/2022 May 10, 2022 AF Thornton 0 Comment S&P 500 Index Daily Chart - Key Levels for 5-10-2022 Good Morning:The centerpiece of one of Bill Clinton’s Presidential campaigns was the mantra, “it’s the economy, stupid.”Now, the mantra should be, “it’s the liquidity, stupid.”We are so easily distracted. Sure, the Fed is doing its thing, making the headlines. But the reality is that they have barely raised rates, and their balance sheet still grew in April.But here is what is happening – liquidity is evaporating.The impact on interest rates and nearly everything else is simple. If you want to sell, discount it. If you have to sell, watch out.Let’s start with the Japanese Yen, previously a somewhat stable currency and haven. Remember the carry trade? Weekly Chart -Japanese Yen vs. U.S. Dollar There is no doubt that there are bodies buried under that Yen slide. It is only a matter of time before the bodies float to the surface.Moreover, Japan may be showing us our roadmap to U.S. sovereign debt perils, not to mention the results of putting an artificial cap on interest rates. Japan is in a doom loop. But for the grace of God, there go we.And don’t forget that Japan is the single most significant buyer and holder of U.S. Government debt in the world. At least they “were.” Recently, Japan has been a net seller of U.S. Treasuries as their problems continue to mount. How does the story end?And so, it is no wonder that the U.S. is experiencing spiraling interest rates. Fewer and fewer are buying what we are selling. Why would they? This is a chart of the Interest Rates on 10-Year U.S. Treasury Notes Look, would you buy our debt? Our country looks like a debt-ridden disaster run by woke, senile octogenarians talking up nuclear war as if it were child’s play. “A Nuclear Strike Might Not Prompt the Reaction You Expect.”Seriously? And the fact that our government will steal the money if a country doesn’t embrace the “Great Reset” agenda doesn’t help with the sales pitch.When I was a kid, we took nuclear war so seriously that we used to have to hide under our desks in school as part of periodic atomic drills. I remember the air raid siren tests every Saturday at noon in Tucson, Arizona, where I grew up.Of course, they also used to show us propaganda films of the former Soviet Union where all the houses and cars looked alike. Have you ever tried to find your rental car in a parking lot without the key fab?But I digress – the real problem is that there are fewer and fewer buyers for U.S. debt at home and abroad. The banks are full and foreign buyers are few. Rates have to go up to attract the few buyers left at the table.I shudder to think what U.S. pension funds look like right now with their failed 60/40 “balanced” portfolios. Unfunded pension liabilities are sure to surface as a problem sooner or later.And without the “War” in Ukraine conveniently scaring the world and driving some funds to seek safety, would U.S. dollars and debt be attractive at all?Do you see how that works? War is good! In every other Fourth Turning, war distracts everyone from the real problems at hand.If you think about it, we are only a few nukes away from lower interest rates, depopulation, and the “New World Order.” The Great Reset crowd must be salivating.I don’t want to go there, but when the U.S. Treasuries don’t sell, even with higher rates, Bernie Madoff, the Federal Reserve is the only buyer left. How does that work, exactly?Never forget that rational humans value a return “of” their capital more than a return on it.Back in the 90s, we used to talk about the “triple merit” bull market. The falling interest rates, oil prices, and the U.S. dollar worked together like a fine symphony driving higher equity prices.So what do we call this bear? How about the “Triple Demerit Bear Market” – a rising dollar, oil prices, and interest rates.The bottom line is this: if it isn’t liquid, you will have a hard time selling it. Remember the FAANG stocks? The ‘N” stood for Netflix. Netflix - Weekly Chart And while I would like to believe that a 20% correction is enough in the S&P 500 Index, the evidence would suggest that the selling is just getting started. We have only begun to see retail mutual fund and ETF outflows in the past few weeks.Sell when you can – not when you have to?When I owned a bank and trust company back in the 1990s, I had the best stock market indicator in the world. The customers would buy at the top and sell at the bottom. It was an uncanny view into the real world of retail investing and the best market indicator I ever possessed.And that brings us to this morning. Likely, today will manifest in a turnaround Tuesday. We are coming off the Weekly Expected Move low at 3985 on the S&P 500 Index. There is significant support at 4000, pessimism is reaching for the stars, and the street is extremely short. We are likely close to another rip-your-face-off short-covering rally.If we are lucky enough to get it, use the opportunity to cull your holdings. We have a rough ride ahead of us.If history is a guide, most bear markets retrace the final leg of the bull. In our case, it would be the entire stock market rally from the March 2020 lows. My ultimate target continues to be 2500 – close to the March 2020 lows and the price I peg to be the middle of the 100-year channel by the time we arrive there. Call it regression to the long-term mean. See the current BluPrint Thesis for a more detailed discussion. This is the 100-Year chart of the Dow Jones Industrial Average showing the market's current location three standard deviations above the long-term mean (middle of the price channel). The market has achieved these levels only three times in history: 1929, 2000, and now. The prior two cases did not end well. The market fell from the channel top to the bottom in a 90% crash to resolve the 1929 overvaluation. From the top in 2000, the stock market dropped over 50% twice over a lost decade to resolve the overvaluation. Our European friends mounted a rescue operation overnight. They tested new lows, but moved back into range. We are slated to open in the upper third of yesterday’s range.At this writing, we may see a True Gap at the open. If so, Gap Rules will be in play. Remember that whether or not the gap fills is your first sentiment indicator today.There is a lot of blue sky below 4000 on the S&P 500 Index. We would need parachutes to ride prices lower from there.For now, I believe that the level will hold, and we should see some short-covering get underway as we approach the mid-week inflation reports.Did you hear me? Take advantage of any rallies to cull your holdings. Don’t be the last one to turn the lights out.A.F. Thornton Click to Learn More About Navigator™ Trading Subscriptions Share with Friends and FamilyWord 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. Facebook Twitter Email LinkedIn
Founder's Trading Journal Morning Notes – 5/9/2022 May 9, 2022 AF Thornton 0 Comment Good Morning:We come into this inflation reporting week on decidedly negative terms.The tech wreck continues with the NASDAQ 100 and the S&P 500 both at new lows and opening down 2% and 1.5% respectively.The S&P 500 has strong support at 4000, which has been my lower boundary call for a while.The market could briefly overshoot the level, as the WEM takes us as low as 3985 this week. But I would be looking to work a bounce from there. Unless we are in an all-out crash, it does not make a lot of sense to short here.We will have a True Gap down at this writing, so Gap Rules are on the table this morning. Focus especially on rules 2 and 4. But even if we open back inside the range, the key is to find acceptance there. Otherwise, the market will expand the lower range.Overnight inventory is net short, so profit-taking should mark the open and boost prices. However, having come back up to the midpoint of the overnight range, the profit-taking may be well finished. If not, and as always, how the market handles the gap fill is your first sentiment indicator.Be sure to mark the open, as it is a key component of working the Gap Rules.Also be sure to review the BluQuant Oracle™ from yesterday for the weekly picture.Your job is to make money – so focus on that today and leave the news off.There is a significant chance for a tradable short-covering rally from here – so stay alert. It would more likely coincide with Wednesday’s consumer price data, but there are always insiders who already know the results.Overnight traders may simply have run the stops under recent lows – just to bring it back up into range. Also note my comments in the weekly review about the 4100 level and its importance.So I will peg support today at 4000, then 3985, with the overnight low at 4031 as the gateway to lower prices. Resistance is now at 4065, then 4100.Recall that we are in extreme negative Gamma. And while that tips the bias to the bear side, gains as well as losses are exaggerated. So once you pick a direction, let it run. Obviously, as short-covering rally has the greatest potential.A lot of folks are talking about a crash today. I don’t see it, and the market is too short to accommodate it without a significant catalyst.That doesn’t mean you have to be the first in. Wait for a true, confirmed pivot.A.F. Thornton
Founder's Trading Journal BluQuant Oracle Weekly – 5/9/2022 May 8, 2022 AF Thornton 0 Comment This is a Weekly Chart of the S&P 500 Index Futures with All Relevant Issues Marked to Successfully Trade the Week Ahead Last week saw another bear candle that closed on its low, just above the February low.When viewed from the January 3rd peak, the weekly candle dipped into new low territory but snapped back and closed inside the 9-month range.For the most part, last week became a trading range week, with the S&P 500 closing almost unchanged.Once again, volume increased over the previous week. The higher volume failed to drive prices significantly lower, so the result is more like stalling action, a slight positive over the prior week.It is an excellent time to mention the range bottom and line in the sand at 4100. We predicted this level back in 2010 as the price likely to coincide with a significant top. It is the 4.236 Fibonacci extension of the 2009 bear market low.It is not surprising that the level provides support, but the market looks even more bearish below it. That hasn’t happened yet.We have the inflation reports coming up mid-week and monthly options expiration a week later. Both of these events are likely to bring us a bounce from highly oversold levels accompanied by the record and negative investor sentiment.The VIX and Dow Transports are not supporting the current lows in the Dow or S&P 500, creating a divergence, another slight positive. The momentum on the hourly charts has been rising on the last three swing lows, another slight positive.Another reason to look for a reversal back up soon is the market dipping into its nominal 80-day cycle low. The variance for the trough is roughly two weeks. Since we cannot get more specific, note the cycle bounce due in late May to early June.Bears want a decisive break below the February 24 low which is the neckline of the double top bear flag, and a measured move down towards 3600 based on the height of the 9-month trading range.The bulls hope that the sell-off in the last five weeks was simply a sell vacuum to test the February low.Mission accomplished if it was a vacuum test. The market could find its rebound low this week.Bulls see a wedge bull flag (Jan 24, Feb 24, and May 2) and want a reversal higher from a lower low trend reversal and the wedge pattern. Count me in this camp.However, the selloff from March 29 has been extreme. The bulls will need at least a micro double bottom or a strong reversal bar before the bull crowd would be willing to buy aggressively.The reality is that traders need more information, therefore more candles. The S&P 500 index may have to go sideways for another week or two before traders decide whether it will break below the 9-month trading range low or reverse higher.If you think about it, the S&P 500 Index has been dancing around 4,400 for 9-months. That price might well form the middle of the new trading range. (See our “Current Stock Market Thesis“”) harping on this point since February. Since the top of the range is about 400 points higher, the bottom could be 400 points lower. That is below the February low and around the 4,000 significant round number (the approximate WEM low this week).Since our formal Sandbox is the WEM range between 3986 and 4254, I am not concerned about anything outside the range. I am primarily concerned with what we encounter inside that vast volatility range expected in the week ahead.I have, once again, overlayed the 2000-2003 bear market on the chart above. Current prices have been uncannily tracking the old bear.And that bear would see a trip down to the 4000ish area, where we encounter the largest concentration of Gamma and outstanding options.The Gamma and prominent positions can provide significant support for a reversal. Given the cycle trough, seasonality, overly bearish sentiment, oversold levels, developing positive divergences, and 2000-2003 bear market tracking, I will be looking for long positions at or around 3800-4000, but looking and buying are not the same.I need confirmation of a turn – but that is where I will be looking for it.Interest rates continue their climb, pushing the 10-year up to 3.22%.Remember my prediction in the 2022 outlook in January?I predicted these levels based on the head and shoulders reversal pattern.Here we are, but even these rates should retrace a bit soon. The rising rates are at the root of all of this trouble. This is the chart of the 10-year U.S. Treasry yield we published back on Junary 22, 2022 in our outlook for 2022. We published the chart above on January 22nd of this year as part of our 2022 outlook. It is even hard for me to accept that my prediction came true. What an unbelievable reversal of fortunes. Yield on 10-year U.S. Treasury Notes And here we are at this writing, with the yield tonight at 3.22%, just below the 3.25% prediction from January. How is that “transitory” inflation working out for everyone now? What a bill of good our government has handled all of us. Conclusion Until rates peak and the US Dollar stops rising – all doubts about the stock market must be resolved bearishly. It is an unusual time. It is rare for stocks and bonds to fall together. One usually offsets the other.Imagine the carnage in pension funds all over the country tonight, and the increase in unfunded liabilities when a balanced investment strategy fails as is happening now. As I keep saying, it is only a matter of time before the bodies start floating to the surface.Nevertheless, the street once again is lopsidedly short and we will continue to see rip-your-face-off short covering rallies in between the slow and methodical bear drips. A rally as such is due very soon. I would not try to short here, and I would be very attentive at the WEM lows this week around 3986.A.F. Thornton Click to Learn More About Navigator™ Trading Subscriptions Share with Friends and FamilyWord 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. Facebook Twitter Email LinkedIn
Founder's Trading Journal Unrelenting May 6, 2022 AF Thornton 0 Comment Unrelenting – Nomura Securities (Charlie McElligott) Charlie McElligott at Nomura discusses what he calls a “Full Capitulation Gong Show” as “Liquidations Ripple Through The Market” amid an “Outrageous Selloff.” Let’s just say he isn’t bullish and raises a lot of good points, including how the market broke yesterday (5/4/2022).
Founder's Trading Journal Morning Notes – May 6, 2022 May 6, 2022 AF Thornton 0 Comment A more detailed version of these notes, together with supporting charts and any plans for trading the Open, are sent to subscribers at 9:00 AM EST., about 30-minutes before the market opens. You can subscribe by selecting the link at the end of this post. Good Morning:Even as bearish as I am, yesterday’s reversal was stunning, mainly attributable to Fed jawboning and negative Gamma.But there is not much good news lately either.The Fed sent its troops out to talk the market back down because it had rallied so hard after the Fed rate increase announcement.The Fed Governors are also out today – so day-trading will be treacherous. I would not recommend it.Since the options market has mispriced the volatility for two days in a row, I am unsure how valuable my range estimates are this morning.The Gamma adjusted range is about 44 points plus or minus the open for a total 88 point range.Not adjusted for Gamma, the range is forecast to be 75 points plus or minus yesterday’s close for 150 points.So far, the market does not seem happy about the April Employment Report that came out pre-market, but I have not had time to analyze it.Unless something in the market breaks – and the possibilities are endless – there is a lot of support between 4000 to 4100.Significant resistance remains at 4200.4300 opens the door to a bullish bias. Below 4300, the sellers are in control.The bond market has practically crashed – and I am waiting for the bodies to float to the surface.On a positive note, the S&P Futures held yesterday’s low overnight, so sellers could not gain more traction.We will be opening towards the bottom of yesterday’s range.Spike Rules are applicable at the open today, so make sure you are familiar with their application.With more Fed Governor jawboning and the weekly options expiration, I do not think it advisable to trade today. Take the weekend to get some perspective.There is an adage – “don’t fight the Fed.”A.F. Thornton Click to Learn More About Navigator™ Trading Subscriptions Share with Friends and FamilyWord 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. Facebook Twitter Email LinkedIn