Archives 2023

Moment of Truth

S&P 500 Index Futures - Moment of Truth for a Breakout or Fakeout
S&P 500 Index Futures - Moment of Truth for a Breakout or Fakeout

Good Morning:

  • The stock market survived the CPI Inflation Report yesterday but looks weak this morning on projected 4th Quarter bank earnings.
  • We remain in our first projected reversal window for 2023. That makes holding yesterday’s low at 3954 critical today, or the reversal will take hold.
  • We also remain in our 10/13 Navigator Swing Buy signal. Yesterday, we added to our position near the lows and lightened up again near the highs. We still carry a runner.
  • The Moment of Truth has its genesis in a resistance cluster, which includes the down trendline from the January 2022 peak and the 200-day line. Either the market breaks the zone higher – potentially giving price a shot at ending the bear on the October lows – or price rolls over into the next down leg.
  • Support is at yesterday’s low (3954), 3905, and 3855.
  • Resistance lies at 4025, then 4090.
  • We have lightened up considerably until we confirm that price can travel over the snow-covered pass. Our work indicates that price will fail to end the bear – but we will keep an open mind.
  • The early February Fed Meeting will slowly come into view in the next few weeks, and price is expected to bump and grind on earnings reports.
  • Will the price fall into the meeting or continue to rally? We will know more next week, but the next intermediate low is scheduled to coincide with the Fed announcement.
  • Don’t forget that Monday is a holiday and markets will be closed.

Have a great weekend.

A.F. Thornton

Target Achieved – Inflation Report Looms

Good Afternoon:

    • Apologies for the late update today, as I am traveling for a few days. I am writing this update from my phone, so I will correct any typos later tonight when I have computer access.
    • I am pleased to say The Founder’s Group followed yesterday’s plan, which materialized perfectly. But we scaled back to a runner again at 3975, though we do not have a formal sell signal yet.
    • The market closed on the high, just above our 3075 target, bullish for the session and week thus far. But our dilemma at the close was that the CPI Report comes out pre-market tomorrow (Thursday). We are forced to accept the results before the market opens – which can be tough with options that only trade in the New York session.
    • The rally indicates that the market expects the confiscatory inflation rate to trend down again for December, even if fractionally. No matter that the government reports are backward-looking and understate what the average consumer experiences by half.
    • Being half Irish, I am always alert to mischievous Leprechauns, not to mention Murphy’s Law. Regardless of the consensus numbers, there is still a lot that could go wrong with the report. Even if the information is positive, market reaction could be one of those “buy the rumor, sell the news” events.
    • Our MTF and Cycle Composite Forecast (see the chart in yesterday’s post) calls for a reversal down in the next 24 hours, a time window that includes all of tomorrow and Friday morning.
    • The reversal might only last a few days but could also begin the final leg into the anticipated and important February Hurst Cycle low. Though I don’t talk about them much, our MTF forecast reversal dates are accurate about 85% of the time. But that also means they miss the mark 15% of the time. So we need to confirm the reversal with the price action or a sell signal.
    • As with most economic reports de jure, I would rather sit it out. There will always be another train leaving the station.
    • And the market already had a nice run off the October 13 low, which is a reasonable tipping point into the nominal, synchronous cycle lows ahead.
    • The anticipated trough coincides with the early February Fed meeting and rate announcement.
    • Ideally, we can sell the runner in the morning, perhaps with a parabolic jump right into the next target at 4012 – 4025. Or, on a dip to the five-day line, maybe add to our existing position if the line holds. If I were not traveling, I might have tried to do both.
    • Let me emphasize that the market has performed well, and we don’t have a sell signal. But there is nothing worse than knowing we could have sold today while the sell signal triggers on a 100-point gap lower at the NYSE open tomorrow.
    • As one of my mentors beat into my head, “when in doubt, get out.” This practice is even more meaningful when you are protecting profits. Keeping the small runner today is a good compromise.
    • Remember that these are tactical, professional trading moves. A typical swing trader should take the buy and sell signals with a reasonable trailing stop, such as a few ticks below the 5-day line.
    • And there are at least a few points left above 3975; we have the 4012 measured move from balance up to 4025, where the 200-day line and bear down trendline from the January 2022 Bull Market peak converge.
    • Of course, the lines above also limit gains, as sellers will be present. Never a dull moment, right?
    • My next update will be tomorrow night.

A.F. Thornton

One Hit Wonder?

Door Number One...

S&P 500 Index Futures Daily Chart - Reversal Up?
S&P 500 Index Futures Daily Chart - Reversal Up?

Door Number Two...

S&P 500 Index Futures Daily Chart - or Reversal Down?
S&P 500 Index Futures Daily Chart - or Reversal Down?

Good Morning:

  • Balance Rules will be tested this morning, as yesterday’s decisive rejection of the 3975 Price resistance disappointed the bulls. For our flagship trading index, the S&P 500, the Balance Range is roughly 100 points between 3800 and 3900.
  • The top of the Balance Range is 3912. Our risk today is that when price breaks out as yesterday and then falls back into the Balance Range, it typically goes right back to the lower end of balance (3800). See Balance Rules.
  • But the Daily Mean and/or FIve-Day Stop Line could catch any fall into 3895. And that leaves us with a bit of a opportunity. We have a simultaneous break-out retest of of the Balance Range high around 3912, and both Mean and Stop Line tests just below 3900. Will buyers show up on these pullbacks?
  • The Founders’ Group views this zone between 3895 and 3912 as a low, risk to stop entry zone, even though failure at the zone calls for a 100-point sell-off. The key is the right stop to prevent joining the full decline if the tests fail.. 
  • So the Founders’ Group will add to the Navigator Swing long position if price reaches the entry zone, setting a one or two ATR entry stop. We won’t lose very much if the trade fails, and we could take the failure as a short signal with the aforementioned 3800 target.
  • As planned yesterday, the Founders’ Group scaled back to a runner (small position) for the swing strategy when price reached 3975. We will handle the runner the same way we handle adding to the existing long position in the buy target zone. If our stop triggers, it triggers on the entire position and we can either short or go to cash.
  • If the Balance Range holds, price will likely test 3975 above one more time. If that level is conquered, price can potentially reach up to 4025, a 2.618 extension of this rally’s seed wave. Given that the Balance Range is 100 points, a successful retest projects a 100 point measured move up to 4012.
  • On the down side, If 3800 is realized, the topping pattern identified yesterday morning takes form and the bears have an edge. See the Door Number Two second chart above. The topping pattern’s measured move down is 200 points or more, and likely the October 2022 low (3502). If some doomsayers are correct, it could get even worse.
  • Recall that from an Elliott wave perspective, the bears still argue that we are in a draconian “3” Wave down.
S&P 500 Cash Index - Current Elliott Wave Count. Source: Daneric Elliott Wave
S&P 500 Cash Index - Current Elliott Wave Count. Source: Daneric Elliott Wave
  • The bear case lines up with the anticipated cycle lows slated for February, and perhaps forms a double bottom with last October. On the other hand, the rally leg we are in now could peak high enough that the February cycle low comes in higher than October.
  • And so, relatively little has changed since mid-December. Look for resistance at 3912, 3975, then 4000. Support is at 3850, 3815, and 3775.
  • Our first potential reversal date on the year is Thursday – January 12th. As always, the direction of the turn depends on whether price rises or falls into the date.
S&P 500 Cash Index - Potential Turn Dates - Favor the Turn Dates over Price Amplitude. Source: @fiorente2
S&P 500 Cash Index - Potential Turn Dates - Favor the Turn Dates over Price Amplitude. Source: @fiorente2
  • As for this week’s remaining catalysts, the Consumer Inflation Report comes out on the morning of our Thursday turn date. Friday’s action will see release of the University of Michigan Consumer Confidence Report. U of M will also release its inflation survey Friday.
  • With such important reports looming, we may not see the price trend until the reports are behind us. And lest we forget, 4th Quarter 2022 company earnings fun starts next Week.
  • Today is the last day I will be in the Trading Room as I have several days of travel ahead. For now, the Navigator Swing Buy signal is holding and we will follow the plan above, subject to new information or intervening events.
  • As always, do your own homework as our approach and decisions may not fit your circumstances. We accept no responsibility for your decisions. Keep in mind that we make a lot of interim decisions between these writings that may not be timely communicated in this Blog to non-subscribers.

A.F. Thornton

The Market Defied Gravity – What’s Next?

S&P 500 Index Daily Chart Cycle Analysis - Follow the Blue Line - Source @Fiorente2
S&P 500 Index Daily Chart Cycle Analysis - Follow the Blue Line - Source @Fiorente2

Good Morning:

  • The market surprised the crowd Friday, but not us. Our buy signal finally gripped, and our patience was rewarded.
  • And we also have had some nice trading profits inside the consolidation over the past week in the trading room.
  • Gap and Balance Rules are on the table this morning, as the market is slated to open with a gap higher.
  • Resistance is at 3975, then 4100. A potential head and shoulders topping pattern becomes visible as the price approaches 3975.
  • And the rally Truly begs the question, reflecting a mini version of my struggle in finalizing the forecast for the rest of the year.
  • The 60 and 20-year cycles predict a very good year for 2023 – past the February/March dip.
  • Yet how can that be? Have you ever seen such seemingly justified doom and gloom?
  • And former Secretaries of State Condoleezza Rice and Robert Gates wrote an opinion piece on the front page of the Washington Post calling for all-out war with Russia!
  • Are the charts leading Us to the contrary play of the century? A new bull run born in these perilous times?
  • If so, and I am definitely not forecasting this, but here is a hint to the madness; the business of the United States of America is War, and the market often moves higher when interest rates begin to rise.
  • Naturally, we need to be alive to collect our winnings, even if a rally ensues. The wisdom of starting a war with Russia or China escapes me.
  • And Interest rates are merely normalizing from Artificially Low Levels – as long as they crest soon. Do the markets simply need to get past the initial speed and shock of the move?
  • So There may not be a deep recession due to the war spending relative to Russia and China. That is why politicians love war. And bank profits should grow faster with the higher loan spreads.
  • Most financial collapses happen in the peace that follows war – Not Wartime itself. I will explain this in the forecast, but Answering the potential rally question is lengthening the report, and leading to some Delays.
  • On the swing trade, The Founders Group is watching the five-day line for stops, and we will consider taking profits at 3975 on all but a runner if the market moves rapidly there today.

A.F. Thornton

Rally Time?

Good Morning:

  • The Monthly Employment Report for December shows employment growth slowing – which is the Fed’s Goal – Twisted as it is. 
  • So far, the market has had a positive reaction, and our runner in the Swing Strategy is still alive. 
  • We will scale into a full position if the market follows through and breaks out of the balance range.
  • Key Levels Are Unchanged—Price Needs To Hold Above The Five-Day Line And Algo Trigger On A Closing Basis for us to stay in the game.
  • Price is slated to gap open toward the top of the balance range, so both Gap and Balance Rules Apply this morning.
  • While it has been the same redundant theme day after day, support Comes At 3850, 3815, and 3775, And Resistance Remains At 3912 And 3975. 
  • If the price cannot break out of the balance range, the next catalyst will be the inflation reports.
  • We Will Be In The Founders’ Room Later This Morning. Ensure you execute a reset if you have not been in the room for a while due to the holidays. Also, anything we discuss on the microphone may not make it into the room notes.
  • Larger Overhead Forces Are Negative, But A Small Rally Is Still Possible.

A.F. Thornton

Still Hanging…

Good Morning:

  • The Fed Minutes were somewhat negative yesterday, but the market held its ground. Whatever the Fed left undone could be finished by two governors speaking today. They clarified that a stock market rally is not preferable to them.
  • Price is sandwiched between the 5-day line (our stop) and the 21-day line (mean) 3892-3875.
  • Key Levels Are Unchanged—price Needs To Hold Above The Five-Day Line And Algo Trigger On A Closing Basis.
  • Support comes at 3815, 3875, and the recent swing low at 33789.75. Resistance Remains At 3912 And 3975. 
  • The monthly employment report is the next catalyst tomorrow.
  • We will be in the Founders’ Room later this morning and tomorrow for the monthly report.
  • After a 10-day triangle and consolidation, the market is likely to break out tomorrow with the report.
  • Larger forces are negative, but a small rally is still possible.

A.F. Thornton

Hanging by a Thread

Good Morning:

  • We have not been stopped out yet, though it has gotten quite hairy in the morning sessions these past few trading days.
  • Yesterday, the Founders’ Group followed the plan and took all but a small runner off the table just below the mean and at the opening of the NYSE session.
  • We moved our stop up to 3848.50 to lock in a profit.
  • I am racing to finish the 2023 forecast today.
  • It is still a bear market until it isn’t, with overhead pressure into early February, but the bear, or this first phase of it, is getting somewhat long in the tooth.
  • Key levels are unchanged. Price needs to hold above the five-day line and algo trigger on a closing basis.
  • Support comes in at 3850 and 3815. Resistance remains at 3912 and 3975. 
  • Fed minutes come out later this morning, so it might be wise to wait to trade until after the minutes are published.

Enjoy your day, and stay tuned.

A.F. Thornton

Will 2023 Be The Promised Year from Hell?

2023 Master Swing Chart - S&P 500 Index
2023 Master Swing Chart - S&P 500 Index

Good Morning:

  • We are coming into 2023 with a swing buy signal from 12/29/2023 at 3860 on the front month S&P 500 EMini futures contract, preceded by an hourly buy signal at 3828.
  • Yet caution is warranted as the first trip back up to the daily chart mean at 3900 is usually sold.
  • We must watch that area carefully, look to take some profits, and keep moving our stops up tight (a close five ticks below the 5-day line).
  • And Gap Rules are on Deck this morning, as the Market is expected to Gap Higher at the Open.
  • Support is below us at 3850 and 3815, with resistance at 3920 and 3980.
  • As to the chart above, we look for turns indicated by the vertical lines, using our price action and algorithms to capture the turn if it manifests.
  • Last year, the lines were accurate about 85% of the time, emphasizing the blue line and turns.
  • This strategy will become clear when you review the 2023 outlook, which we will publish late today.
  • All of the verticle lines indicate potential turns, but the blue line is the most probable path.
  • Don’t marry the actual path and amplitude of the price, as it is less important than the turns/trend changes.

Welcome to 2023! The first day in the trading room will be Thursday.

A.F. Thornton

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