Archives August 2022

Below are excerpts from A.F. Thornton’s personal trading journal and notes. The full notes are available to the Founder’s Group and other subscribers. The messages highlight Mr. Thornton’s daily trading plan. The notes can sometimes be offensively blunt, as he highlights the various geopolitical and economic issues influencing financial markets.

References to “the Market” below mean the S&P 500 Index. The quoted numbers are from the front month E-Mini continuous futures contract. Our primary focus is trading the S&P 500 index using the cash SPY ETF, options on the SPX or SPY, and S&P 500 EMini and micro futures.

Whether the S&P 500 index is in an uptrend or downtrend has considerable influence on the direction of individual stocks. The Navigator Algorithms™ can serve as an initial screen to help determine whether market head or tailwinds favor long or short trades.

• I will be in the Founder’s Group Trading Room tomorrow (Thursday) with subscribers. Tomorrow’s job numbers and Friday’s employment report loom as potential stock market catalysts.
• The bears took control of the tape this morning after the first 15-minute candle and a failed attempt to take out the Globex high.
• The half-roundie contained the losses today at 3850. Still, it was another ugly day with a 31-point loss from Tuesday’s settlement. Any traders who got sucked into yesterday’s early session peak likely experienced even more pronounced losses of as much as 70-points.
• Thematically, the market continues its slide following Federal Reserve Chairman Powell’s smack-down speech this past Friday. The money markets continue to price a .75 Bps hike at the upcoming September 20-21 Federal Reserve Open Market meeting and announcement.  
• We expect the market to continue to weaken into monthly options expiration on September 16 and perhaps into the September rate hike announcement after the Fed meeting on September 21. 
• Generally, price acceptance below 4000 in the past few days is bearish. Looking at the options market, I consider 4000-4100 as neutral and any move back above 4100 as short-term bullish.
• I slightly adjusted the WEM Sandbox, now set from 3940 to 4140 for the remainder of the week. The DEM Sandbox contracts for tomorrow (Thursday), with a floor of 3912 and a ceiling of 4000.
• Note that tomorrow’s DEM low drops below the WEM low. There is some tolerance for such a dip, with the price returning inside the WEM range by Friday’s weekly expiration at the close. 
• But as we have seen lately, at about 35 points under the WEM low, dealers are forced to sell futures to hedge inventory. I added the 1.5, and 2.0 WEM low standard deviations to our key levels in the list above in case prices don’t hold.
• Because we are starting a new month, I recommend that you track September’s opening price and August’s high, low, and midpoint. 
• Mark these levels on your chart, as the market often reacts at the levels in the new month. Any level could be a reversal point, even for a short period. 
• Also, amateurs place stops around these levels, which often contributes to the reversals. As you know, I like to get positioned to ride into stops, anticipating a reversal.
• On a negative note, the August monthly candle closed on the low – but had traveled slightly less than halfway down July’s monthly candle. 
• Bears were happy to see that August’s monthly candle failed a breakout attempt above July. 
• Bulls don’t want the market to grind into the bottom 1/3 of the 420-point July monthly candle. The .618 retracement of the July 14 – August 16 rally is 4105 (the bottom of the Fib Buy Zone on the chart above). Watch that level closely.
• Breaching 4000 on two closes potentially converts the millennial roundie to resistance, already set by the options market as the DEM high tomorrow (Thursday).
• Don’t forget that all levels reverse polarity when price pierces them. Support becomes resistance and vice versa.
• In addition to traditional support and resistance, we continue to project Fibonacci downside targets from the 8/16 – 8/24 – 8/26 triad. The price already pierced the 1.0 downside target at 3998.25, and we seem to be on the way to the 1.618 target at 3964.25. 
• The failure at the one-to-one projection negates an ABC two-step correction, making the current down leg from the 8/16 peak impulsive, directional, and bearish. The daily trend is officially bearish again, or if still bullish, it hangs by a thread.
• There is a falling wedge pattern forming on the hourly chart. The pattern counsels us to anticipate a potential reversal from 3900 in a “4” Elliott theory retracement wave. The 3900 level has morphed into important support in the past few sessions, replacing 4000 as the new Put Wall.
• As mentioned in previous notes, the key to the options market price influence would be whether traders added to put positions, moving the Put Wall, Zero Gamma, and Volatility Trigger lower. Traders did add to short positions in the past few sessions, moving all of these levels down.
• Negative Gamma pressure is commensurately lowered from 3950 (mentioned yesterday). The additions to option put positions in the last few sessions negate any hope of the Negative Gamma leveling out at current levels.
• Negative Gamma will continue to pressure dealers to hedge their inventory by selling futures into declines, worsening the down thrusts.
• Recall from Monday that I mentioned it is normal to expect positive fund flows for a few days at the beginning of a new month. So far, flows are not moving the market higher at month-end. This demonstrates considerable selling pressure exceeding the positive flows. If the price fails to rise in the first few days of September, use the failure as a contrary (bearish) indicator.
• Did I forget that September is the stock market’s weakest month?
• Volume continued to spike today, which can coincide with an intermediate low. Keep an eye on volume, how much it moves price, and in what direction.
• Lately, the volume moved price proportionately lower, in a good price/volume relationship. What would be helpful is to see spike volume on a wide-ranging turnaround/reversal candle on the daily chart.
• Don’t forget that the Hurst Nominal 80-day cycle is due to trough soon and could give us a left translation bounce – perhaps from the 1.618 Fib target (approximately 3850 -see above).
• Very serious global tensions continue to mount vis a vis Russia, Iran, North Korea, and China. We are living history in very dangerous times.
• Europe’s economy, significantly impacted by energy, water, and food shortages, is teetering on the cliff’s edge. The situation is unprecedented in modern times. The contagion will eventually arrive on U.S. shores.
• President Orwell will give a speech tomorrow intended to demonize former President Trump and his supporters. It is hard to imagine him doing something so unwise, but we shall see.
• The current President and his fellow Orwellians fail to recognize that Trump did not create Make America Great Again (MAGA); MAGA made him.
• It would seem wiser for President Orwell to explain how he managed to destroy, embarrass, and demoralize our country in such a short time after the Trump administration handed it to him on a silver platter. The only plausible explanation is that he did it on purpose with the rest of the World Economic Forum cabal.
• If I were President Orwell and affirmatively pro-American, I would start by apologizing to the country. Then, he should admit where he was wrong, pledge to do better, and plan to get the train back on track. The American people are very forgiving to authentic, well-meaning leaders.
• Like many of my fellow and esteemed investors and forecasters, I always endeavored to be measured and responsible in my outlook. Yet, top-notch business leaders like Warren Buffet, Charlie Munger, Ray Dalio, and the like are vigorously ringing alarm bells. This is uncharacteristic and indicates serious, systemic problems at work. The last time Warren Buffett was this negative when he wrote an editorial to the Wall Street Journal warning of the 2000 market top.
• It is not typically advisable to predict that the sky is always falling, like Chicken Little. Nor is it wise to be the boy who cried wolf.
• I have never experienced a time such as this when such knowledgeable, capable, successful, and even-keeled investors, business leaders, and economists are warning that the sky is falling and the wolf is at the door.
• Sure, they could all be wrong; some probably are. But the alarm bells are not coming from the usual fear-mongering crowd. The predictions are extraordinarily dire, and I am paying closer attention than usual.
• A year ago, Fed Chairman Powell followed up his Jackson Hole conference with a speech telling us that inflation was transitory. He has been admittedly wrong, even recently confessing that the Federal Reserve did not understand inflation. I shudder to think what the world will look like a year from now.
• We are experiencing a moment in time that requires us to prepare for the worst. It would help if you had a contingency plan for yourself and your extended family. It is always advisable to have such a plan, with extra food and water on hand. But perhaps it is more important now than ever before.
• I plan to be as self-sufficient as possible if there is a need to ride out the economic and political storm. It never hurts to have a good plan just in case things get crazy.
• As the World Economic Forum’s Klaus Orwell and his fellow Orwellians promise, by 2030, “You will own NUTTING – NUTTING! But Klaus, Bill Gates, and their many globalist friends “VILL be very happy!”

 A.F. Thornton