Founder's Trading Journal Morning Notes – 6/13/2022 Jun 13, 2022 AF Thornton 0 Comment Good Morning:Heading into this pivotal week, futures are down 2% to 3800. We look for high volatility today, with initial support at the 3800ish May 20 low, then 3700. Resistance (should we be lucky enough to encounter it) is at 3900, then 3950.High-volume nodes stretching out to the left above (shaded across the chart in grey) are where the market will likely find support. Low-volume valleys (also marked across the chart as the dark black background areas) tend to be “air pockets” on the way down.Price can slide through the air pockets quickly, but where the valley contracts the most can also provide support.So the price will move from each peak to valley until it finds the price the institutions are willing to pay in the circumstances.Over the next few sessions, the S&P 500 will be testing the May 20 low. It has been a long time since we have seen “spike” lows, with accompanying panic and fear. But that is what I am expecting over the next few sessions.If the retest fails, and failure is more probable than not, the subsequent high volume nodes from here start at 3400.3400 down to 3200 is the likely support for any spike lower today through Friday, as the market wanders through the next Fed meeting and VIX expiration on Wednesday, then quarterly options/futures expiration on Friday.Our subscribers are sitting on substantial year-to-date profits and remain in cash. We will proceed cautiously as the market searches for support. When we think an intermediate low is in place, we will share it with the public on these pages.If you review our Current Market Thesis on the menu to your right, the market is right on track to confirm the projections. Amazingly, the thesis has not changed since January, though we are always keep an open mind.We recently communicated that the consensus for a continued bear market rally was too high – so the market rolling over is not a surprise.But the fact that the rally stalled so early could be ominous. We are in a “3” wave down – generally the most significant decline in a series. And it could also be the case that this is the “3” wave in the first wave down. S&P 500 Index Elliott Wave Analysis courtesy of Daneric's Elliott Wave I hope I am wrong, but we are still very early in this bear when one overlays the bear markets of 2000 and 2007 and projects them proportionately into the future. The 2007-2009 bear was even quicker in pace, but no less damaging over time.Today’s retest would have been successful if this were the 2007-2009 bear, and the market would rally up into July/August before rolling over again. Of course, nobody knows what comes next, though I do my best to lay out the roadmap. Again, I try to keep an open mind. I always chuckle to myself when we are required by the SEC to say that past performance is not a prediction of future results when all we do is study the past to try to predict the future. In addition to every other negative, rumors are floating that the Fed could hike rates by 0.75 basis points on Wednesday. If so, the market might view that positively as a tough and committed Fed. The S&P 500 Index closed at 3840.25 on the day the Biden Regime was sworn into office. So, in addition to every other negative record broken by this incompetent administration, the stock market is now lower than when they took office.Also, if the S&P 500 Index closes below the May 20th low, the index officially joins the other indexes in an official bear market (-20%). I have never experienced or observed such purposeful destruction of a prosperous economy. As frustrating as Trump was, I would take him back in a heartbeat over the current regime. I will save an analysis on the Friday options expiration and its potential influence for separate writing. Don’t forget VIX options expiring on Wednesday. As we are opening with a solid True Gap lower on 100% net short overnight inventory – Gap Rules are applicable. The 100% short overnight inventory adds to Friday’s bearish close. Be on alert for some profit-taking on shorts (buying) near the open—more on that below. Ten-year yields have made a fresh new swing high overnight (well over 3.25%) which I’m sure isn’t helping. Key Levels should be marked off today as the overnight range is extensive but has two prior VPOCs within it. As the overnight activity has breached the May 20 swing low from 5.20, although the price is trading somewhat above this level, the level will be pivotal today. Shorts may have gotten ahead of themselves below that low, and some may be feeling the pain of poor location this morning. I would not be surprised to see a fade move early if markets open above the swing low. Today’s focus should be on the 3800 level and whether price action is above or below it. Remember that today is the first official day that the new “U” contract is trading. The contract change was moved up from Thursday in an announcement from the CME last week. The Value Area data is still on the “M” contract today and will reflect the new contract in tomorrow’s report. Be careful if you are going to trade this today, A.F. Thornton
Founder's Trading Journal Morning Notes – 6/10/2022 Jun 10, 2022 AF Thornton 0 Comment Good Morning:The wait is over as the S&P 500 and all if its cousins broke the downside of the Balance Range yesterday and it was hardly a fake-out. It just broke and went.And the inflation rate did not disappoint this morning either, coming in hot again at 8.6%.The core rate, which tends to fluctuate less, came in at 6%.The S&P 500 is trading at 3958 at this writing, which is well below the 4050 WEM low, and well into negative Gamma. It would take a miracle for the Dealers to bring the market back to the WEM low at 4050. They can do it, and they have done it before, but it will be tough on a Friday.The best short-term hope for longs is the trendline coming up and connecting the March 2020 low (2174) to the May low at 3807.50. S&P 500 Weekly Chart As usual, I will have more to say on the weekend. The Fed Meeting next Wednesday is most likely to bring the next tradable low.A.F. Thornton
Founder's Trading Journal Morning Notes – 6/9/2022 Jun 9, 2022 AF Thornton 0 Comment Good Morning: In this market, it seems everyone gets their turn at bat – or getting battered. Tuesday, the shorts took it in the chin. Yesterday, the longs were taken to the woodshed. Yesterday was an inside day, not resolving anything. And that leaves us with the balance range (4070-4200), with Balance Rules still applicable. The range is now complicated by a converging triangle and there is even more to the story. May inflation numbers will be released Friday morning. Ostensibly, the longs got clipped yesterday because the Biden Regime announced mid-day that Friday’s inflation numbers would be elevated again. Of course, the downtrend line stopped the price action too. Nor did it help that Secretary Yellen said there was little they could do about inflation due to “Putin’s Price Hike.” Talk about BS… Of course this is not true. If the Biden regime really wanted to stop the Ukraine war, they would stop funding it. The military industrial complex just keeps moving their tents. First Iraq, then Afghanistan, and now Poland and Ukraine. If they wanted to stop Putin, they would simply pump oil and gas until the price plunges again (destroying Russia’s oil/gas windfall profits). Everything else will fall into place. I always remind myself that things are the way they are for a reason. There would not be a Ukraine war if the Globalists didn’t want it. Nor would we have an open border if they did not like it. I mention this because oil is climbing to $125 per barrel, and I expect it to hit $150. Everything Russia sells continues to skyrocket in price – lining Russia’s pockets. And are the sanctions working to prevent him from selling? Have any sanctions on any country ever worked? Of course not. Why would Russia stop the war – it is the most profitable thing they have done in years? As to our military industrial complex (employing half of Washington, D.C.), what is their incentive to stop the madness? Ukraine is another cottage industry and laundering operation for government bribes. Besides, Washington D.C. has more important things to do like taking our guns away, likely right before Russia or China invades us. Do you see how this all works? Let me diatribe on one more point. Watch Iran and Israel. Everything else is a distraction. These two countries are headed to war over Iran’s attempt to secure nuclear weapons which they will not hesitate to use. Remember “Death to America” and “Death to Israel?” Meanwhile, back at the ranch, with the (i) inflation data coming tomorrow, (ii) the Fed meeting and VIX expiration coming Wednesday, and (iii) $3.5 trillion in quarterly options and futures expiring a week from today, perhaps a trading vacation is in order? But if you like volatility… If you are going to trade, stick to the plan outlined all week and apply Balance Rules. The balance range has not changed (4070 to 4200). The Balance Range projection is double the range if it breaks. Sometimes the first direction it breaks is usually the pros running the stops to take it in the opposite direction. Keep that in mind. Back to the ranges, it is 4070 to 4200. But the range is compressing into a triangle. Why? Pay attention to the weekly down trend line and the daily uptrend line. Also, the five and 21-month lines on the monthly time frame are binding the price action. Note the rising trendline connecting the March 2020 and May 2022 lows. If the balance range breaks lower, and you are looking for a full retest of the May low, this rising trendline could prevent it. Rising or falling trendlines can catch you off guard if you don’t draw them in from the higher time frames. The daily price fell below the 5-day line again yesterday (negative). At least the line is flat rather than downsloping. Price remains on the 21-day line (mean) support at 4100. We find the Navigator Algorithm sell trigger line there as well. In fact, there is a lot of option support holding the market at 4100, which is why the level is short-term critical. In addition to the top of the balance range sitting around 4200, we also find the 50-day line there. Sentiment remains pinned at bearish levels (which is ordinarily bullish). Perhaps this is the exception to the rule. Negative sentiment may stay pinned in a bear market just as bullish sentiment stays pinned in a bull market. Or, God forbid, they could be right… The bottom line is that the S&P 500 is ready to make a 100-point move (at minimum) projected from the top or bottom of the balance range. A fake-out might lead to a 200-point move up through the other end of the range to target. The current flag chart pattern typically forecasts a move higher. But escalating oil prices (approaching $125 per barrel) and 10-year rates (popping over 3%) are exerting negative influence, chart pattern be damned. At this writing, the overnight range (4102 to 4145) has already tested both ends of the compressing triangle. Use those as your bull/bear boundaries today. As I advised yesterday, stay alert for fake-outs. I would not be surprised to see the market stay inside this range all day. Likely, we need tomorrow’s inflation report as a catalyst to move the needle. Brace. The daily price action is a bit more complicated than usual because the price may first break the compression triangle, but hold at the Balance Range boundaries. To me, that is your best case today. It might be worse. To be successful in this price action, you must combine all the multiple time-frame issues. I have already published detailed marked charts for subscribers this morning. Consider a subscription. It quickly pays for itself. Initial jobless claims were higher than expected this morning, perhaps confirming that the economy is slowing. The index sold off on the news. I doubt I will try to trade this unless something exceptional presents. 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 – 6/8/2022 Jun 8, 2022 AF Thornton 0 Comment Good Morning: I had warned yesterday to watch for the fakeout. And this is why you should never put on shorts in the hole at the end of a session, as many had on Monday. Yesterday’s snap recovery off the bottom of the balance range was primarily short-covering. Monday’s shorts were trapped. Volume improved over the previous bear day, so that was encouraging. Balance Rules continue to prevail with the range between 4070 and 4202. Don’t forget the WEM range between 4050 and 4250. Nothing resolved overnight, as the S&P 500 traded inside yesterday’s range. The index did stay in the upper half of yesterday’s range. The daily chart pattern looks like a consolidation to move higher, and the extraordinarily negative sentiment would certainly support higher prices. Regardless, reticence ahead of next week’s Fed meeting and quadruple witching (quarterly) options/futures expiration has the indexes running in place. 4100 is significant support within the balance area, with 4150-4160 primary resistance. The 4200 Call Wall likely is the max overhead target into Friday, even though the WEM would allow a move up to 4250. At this point, traders who want to hedge into next week have likely done so. So the market is a bit tired here. With the practically historic $3.2 trillion expiration next week, I expect the markets to reset with whatever direction ensues from the Fed meeting. Range trading can be productive, but it is still a time to be careful and be sure to use stops. The primary risk right now is an exogenous geopolitical event. Don’t get caught off guard without a stop. A.F. Thornton
Founder's Trading Journal Morning Notes – 6/7/2022 Jun 7, 2022 AF Thornton 0 Comment Good Morning:Review yesterday’s AM Notes and stick to the script.The open question is whether the market will draw down into the Fed Meeting and Options/Futures expiration next week or rally into the dates.This morning, we add that the market will open with the 5-day line breached (a negative), though the market is opening on the 21-day line (important support).How the market closes today will tell us a lot.We will open with a True Gap down, so both Gap and Balance Rules apply today.Watch for the fake-outs – it is that kind of market.Balance means that bulls and bears have relatively equal power. They trade places day to day and hour to hour until a winner emerges.The 10-year Treasury Note popped back over 3%, which put pressure on stocks yesterday and this morning. The higher rates brought us to the lower end of the balance range.Remember that the WEM low is at 4050, so Dealers need to close at or above that level to avoid considerable losses this week.The 4000 level is the lower support boundary, but we are already in negative Gamma below 4100, so volatility will pick up this morning.For the past several sessions, options traders added negative deltas as the S&P went above 4150.Essentially these 4150-4200 (415-420 SPY) call positions are starting to limit the chance of a 4200 test (aka upside volatility), while 4000 is still reasonably viable to the downside.Good luck today. The market is not easy to trade at the moment.A.F. Thornton
Founder's Trading Journal Morning Notes – 6/6/2022 Jun 6, 2022 AF Thornton 0 Comment Good Morning:The overwhelming consensus is that we are in a bear market rally, and the market will roll over again soon.Accompanying that opinion are some of the most bearish sentiment readings I have seen in my career – which usually means that sellers are exhausted.On the first point, there is little doubt that the recent rally started with short-covering. But all rallies start that way after lengthy corrections.On the second point, market lows generally align with the negative sentiment we are experiencing rather than another roll down.I almost loathe having an opinion that aligns with consensus – and being bearish now seems antithetical.These are unprecedented times, and the crowd could be right for once, but it would be the first time in my 35 years of trading and investing.The market will open around 4150, about halfway back to the top of last week’s trading range between 4100 and 4200.Whichever way the market breaks from the range leads to another 100-point move.Because of the negative sentiment and the lopsided consensus, I believe that the market is likely to go higher rather than lower.The Fed Meeting and Quarterly Options expiration next week are the draws to keep the market turbulent until it establishes a clear direction.More than $3.2 trillion in options/futures will expire on 6/17, a staggering figure.For now, The most crucial indicator of where the market is going is the price action.I use the 21-day line as my bull/bear threshold until the trading/balance range breaks.Use Balance Rules as your guide in handling the 4100-4200 range.Volume continues to increase on down days and decrease on up days, which is slightly negative.Naturally, we would expect total volume to decrease as summer gets underway in earnest.The twin dynamics of declining implied volatility and put-decay (vanna/charm) make it challenging to forecast the outcome of next week’s Fed meeting and options expiration.If the market rallies into the Fed meeting, particularly toward the 4300 line, Dealer hedging likely pulled the fuel from put expiration (via dealer short hedge unwind) forward. The hedging removes energy for a post-meeting rally.If the market is weak into the meeting and the quarterly expiration a few days later (<4100), then we’d look for a rally after the 6/17 quarterly (quadruple witching) expiration.So any directional edge isn’t likely to emerge until we get closer to the 6/15 Fed meeting.For now, I expect either a test of 4300 or the large open interest strike at 4000 into month-end. 4100-4200 remains critical for the rest of this week.This week’s SPX WEM is roughly 185 points, between 4015 and 4200. The expected move for today is approximately 110 points, using Friday’s SPX close at 4108.54 as the center point. The move is likely capped by the WEM high at 4200 with 4190 as the lower boundary.Since the market will open with an orthodox gap (not a True Gap), you can draw a range plus or minus 44 points from the open (an 88-point range). I base this range on recent implied volatility (VIX) readings, but since realized volatility has been deviating from implied volatility, the estimates have been less accurate over the past week.I always draw the expected move from the open and the previous day’s close on my day trading charts. I view this as my sandbox and look for any key indicators or levels I am likely to encounter. I prefer to go long in the lower quartile of the projected range and short in the upper quartile, all else being equal. I coordinate these daily levels with the WEM levels to have a clear windshield of all I will encounter that day and for that week. Nothing is a mystery for me as the week wears on.I post charts with all of these critical levels pre-market for subscribers pre-market.Have a great day and a fabulous trading week.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 6/3/2022 Jun 3, 2022 AF Thornton 0 Comment This is a daily chart of the S&P 500 Index with the Navigator Algorithm and Readout Panel Applied Good Morning:Resistance remains at the 4200 Call Wall, with support at 4155 (SPY415), 4127, and then 4100.The gravity line remains at 4211. Remember that sustained acceptance above that level adds to the bullish case.Volatility is compressing now that we are above the trigger, so the move for today projects 44 points plus or minus the open.Liquidity is still low (see the volume discussion below), so outsized moves are possible. The below-average liquidity explains why the realized volatility has exceeded implied volatility lately.The street is, once again, well-hedged. Put buying has dried up, and the SKEW is extremely low, perhaps clearing the way for higher prices.However, downside protection is still relatively cheap if one wants to hedge ahead of the 6/15 Fed meeting.As I shared with one of our subscribers yesterday, I wake up these days wondering whether a systemic collapse, the beginning of the Biden Depression, or something worse is on the table. My wife doesn’t call me the “Doomscroller” for nothing.Fortunately, I am usually wrong about these things – so let’s hope this is not the one time I am right.And the stock market may already be counteracting my irrational fears. Yesterday, it retested the mean and bounced, precisely what the index should do if a significant low is in place.And we remain in a Navigator Swing Buy signal.As you will see from the chart above, the Navigator Algo painted preliminary buy signals (yellow arrows) at the literal low on 5/20, with another painted the next day on 5/21. Then it painted an all-clear green arrow on the cross of the 21 on 5/27.Our Swing Trader subscribers have been making a killing in this run. Consider a subscription; you will be happy you did.As a result, the bottom that began forming a little less than two weeks ago looks similar to any significant low I have seen in my career, except that volume support is not ideal.Each day, the volume on bear candles still uncomfortably exceeds the volume on bull candle days.Nevertheless, fear gauges remain elevated, and the progression off the low is constructive, so the market has room to run higher.Aside from that, over the past four trading sessions, the S&P 500 remained in a 100-point balance range bounded by 4075 and 4175.If the index breaks higher, the balance range projection predicts another leg up to at least the 50-day line at 4275 or so.If you look back at the charts presented over the past week, that is where this bear retracement leg should end, assuming the index is genuinely completing an expanded flat “2” wave.But even accomplishing the move to 4275 still leaves ambiguity. Both bulls and bears have a leg to stand on, even at 4300 or so.For example, you can observe the potential formation of a head and shoulders reversal pattern with the neckline at 4300.This pattern could take the stock market even higher, while traders are getting all beared up again in the next dip, which ends up merely being the right shoulder of the pattern.And what would be the bull case? Besides most stocks having lost half of their value recently, the market could be anticipating a Fed pivot or perhaps a resolution of the Ukraine conflict.The point is that there is always a catalyst to take the market higher, especially when the darkest days dawn.Remember, the bad news is good because we don’t want the Fed to keep raising rates.Overnight traders have erased about half of yesterday’s gains at this writing.Let’s see if yesterday was a fluke, or whether we can keep this rally moving today.Recall that the WEM this week is 4050 to 4250. For once, it would seem we end up somewhere in the middle.A.F. Thornton
Founder's Trading Journal Morning Notes – 6/2/2022 Jun 2, 2022 AF Thornton 0 Comment Good Morning:In just about any time frame, traders nearly always buy the first visit to the mean (21-period EMA) once conquered. Yesterday was no exception on the daily chart.And there certainly is room to take the market higher and still be in the bear or a recovering bull.But the bears caught an edge yesterday, as the bounce yesterday was anemic. Comments from Jamie Dimon, CEO of Chase Bank, accelerated the move into the 21-day line and muted the bounce as he advised that there was a financial “hurricane” coming.Recall that Mr. Dimon was one of the few CEOs (and Chase was one of the few banks) who survived the Great Financial Crisis without a hat in hand to the taxpayers.Mr. Dimon is a highly competent banker and an exceptional leader in managing risk.Combine this with similar warnings from people like the head of the European Central Bank, and you will begin to understand the current pale that remains over the markets.But I will give Janet Yellen, current treasury secretary, some credit where it is due.In a rare admission, Ms/ Yellen stated that she completely screwed up her “transitory” inflation forecast.These people are fallible humans, after all. And they suffer both from Groupthink and academic isolation.Admitting you have a problem is always the first step to solving it.Surprisingly, she has caught nothing but grief from her comrades on the left for admitting she got it wrong. I find the admission refreshing.Futures have edged higher to 4120 overnight. Our models suggest similar volatility to yesterday, with a plus or minus range of 45-50 points from the open. 4100 remains the main support level and key to containing volatility. 4150-4160 (SPY 415) remains solid resistance, followed by 4200.There is a clear trend toward buying short-dated puts and selling calls in the options market.The piling on of these bearish option plays could easily push the market over again to retest the recent lows at 3800.The key for the markets is to hold the conjunction of the 5-day and 21-day lines currently sitting around 4075.Global tensions and climbing food and oil prices add to the worries.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 – 6/1/2022 Jun 1, 2022 AF Thornton 0 Comment Elliott Wave 2 Targets in S&P 500 Index Good Morning:Yesterday’s price action mainly behaved according to the script, consolidating the short-covering gains from last week.The geopolitical situation continued to deteriorate, and I will have more to say about that in the Weekly/Monthly forecast.Futures are trading at 4130 after a quiet overnight session.Today, we see support at 4100, with resistance at 4160 (SPY 415) and then at 4200 (Call Wall).Calls continue to fill into the 4150-4250 strikes, which add to overhead resistance but also help reduce overall volatility.We are likely to see short-dated hedging strategies lead us into the next Fed meeting. Protection is relatively cheap right now.Today’s expected move is 44 points plus or minus the open, with the WEM range still set between 4050 and 4250.Overnight inventory is balanced, so there is nothing to help guide us at the open. Let the market settle in a bit before day trading today.I still believe that the S&P 500 Index can hit the 4185-4233 target mentioned last week and remain in the bear.Sustained price action above 4211 would cause me to reevaluate whether the bear is still in place.The market may continue consolidating last week’s gains for a few more days.All eyes will continue to point to mid-June and the next Fed meeting and Quarterly options/futures expiration.In the meantime, oil prices keep climbing, and our current overlords in Washington continue pursuing policies that are virtually certain to lead us into the economic abyss.The European governors are also leading Europe into the abyss, so there is comfort in numbers.In the meantime, Vlad and Xi are smiling at our demise.There is no reason for them to nuke us. If Russia and China wait patiently just a bit longer, we are sure to destroy ourselves from within.Other than a peace deal in Ukraine, there are not many positives to write home about. The monthly employment report should be interesting later this week.We have a couple of Fed governors speaking today (Williams and Bullard) so be careful around 11:30 AM EST.On the economic front, we also get JOLTS job openings, ISM Manufacturing, and the Fed’s Beige Book to give us some additional economic clues.Recall that the bad news is good news for interest rates at this stage until it negatively impacts earnings.We are always wise to follow the price action with no preconceived notions.But the issue remains whether we just ended a cyclical bear with enough damage done to begin recovering.It is possible, and if it were October, I would be more convinced.The alternative is that there is more to come after we meander through June, July, and August.I am betting that the May low is not the final low, which is more likely to be achieved on the 18-month cycle low later this year.If my calculations are correct, and we know I am a genius at this (you can laugh now), we just finished the mid-point of the nominal 18-month cycle, and the ultimate low lies out in mid-September.As they say, one day at a time.A.F. Thornton