Archives

Good Morning:

• Yesterday, we advised subscribers of the Founder’s Group’s decision to close their 9/12 short position and any puts at 3860.75 (EMini Futures or equivalent).
• The Founder’s Group often uses the same signal to reverse direction and go long, and some subscribers are accustomed to mirroring the trade. We cautioned against that yesterday. But if subscribers went long, we sent an alert this morning to exit any remaining long positions or calls at 3886.25 (EMini Futures or equivalent).
• For the Founder’s Group. Cash is king heading into tomorrow’s Fed announcement – no longs or shorts for now.
• The Founder’s Group also advised subscribers that the Navigator Algorithm remains in a sell position on the daily chart, but it is wobbling on the fence of a buy signal. But the Founder’s Group prefers protecting this year’s substantial gains – rather than guessing whether the buy signal ultimately paints. 
• It makes sense to let the dust clear on the Fed decision tomorrow, and then we will reassess. We don’t see a discernable path for the market as yet. 
• The last three candles on the daily chart form a reverse triangle. That means traders ran the stops above and below the previous day’s high and low before the price reversed to the other end of the current day’s candle. The behavior shows indecision and temporary balance between bulls and bears. It is also a breakout pattern.
• I am still asking myself why the market isn’t in worse shape, which leads me to conclude that rally risks are high – even if it is a short-lived jump. Moreover, there is still option market distortion from the monthly/quarterly expiration last Friday and even going into tomorrow’s meeting. 
• And money managers may still be trying to move the market higher to pad quarter-end statements. 
• These cross-currents make forecasting direction before such a major announcement difficult.
• Additionally, negative Gamma has flattened out at these levels. It could require dealer buying to hedge positions – supporting advancing prices should they go higher in tomorrow’s post-announcement volatility. 
• So the market could put in another upside rip after the Fed pontificates tomorrow, only to roll over again as it aims for the early November 20-week cycle low. If nothing else, this bear has been mostly orderly – lacking the spike lows and capitulations we saw in the long bull phase.
• It is also remotely possible that politics could enter the fray. The next Fed meeting is coincident with the mid-term elections. The Fed may front load now to leave room for neutrality around the election. But 0.75% seems to be in the bag – and 1% seems to be the outlier.
• Cycle theory strengthens the bull case because we are in the zone for bottoming an 80-day cycle, the midpoint of the 20-week cycle. And investor sentiment is negative to an extreme, also bullish.
• But the 10-year treasury interest rate broke out to a new high today at 3.6%, as have many other bond interest rates. One would expect the market to be down a lot more than it was on such news. But we remain convinced that the new rate will eventually lead stocks to new lows.
• More than anything, traders will focus on the “direction” of rates tomorrow if traders can decipher Chairman Powell’s “Fed Speak.”
• With breadth on the NYSE coming in at almost 8 to 1 Decliners over Advancers and the NASDAQ at 3 to 1, the glue holding the market together is more like Elmer’s than Superglue.
• For now, I would rather short rallies (something more than we saw this morning) than buy dips.
• My best guess; the market rallies out of the Fed meeting and rolls over again at the end of the month/quarter. I will play that fiddle after the market settles down in the next 24 to 48 hours.
• Our subscribers will be alerted when it is time to get positioned after the Fed announcement tomorrow. Become a subscriber, and you will get the same timely information they do by text or email.

A.F. Thornton