The Fed would have needed to start raising interest rates until the invasion because inflation is out of control. But the Fed doesn’t want to raise rates. It should have started tightening almost a year ago, and it looked for any excuse to delay – a delay that has led to the current inflation crisis.
Now the Vladiator has given America’s Finest Central Bank a new excuse to do nothing about inflation, and doing nothing is what this Fed does best. Ostensibly, a potential continuation of easy money flow triggered a short-covering rally. No, it had nothing to do with Biden’s speech which came long after the market had started the short-covering rally.
All those weight loss commercials always show you the before and after pictures. That is the best way to start this dialogue. Let’s start with the before picture in this morning’s outlook:
Buy on the Canons and Sell on the Trumpets
The argument for Day Traders this morning – if it made sense to trade at all – was to buy the invasion news, as fear was historically high, including puts versus calls. Probably the only thing we missed was a preferred entry at 4050. The market never got below 4125. But a pivot always overrides a target.
There were so many puts that the gift of the gap down was too good to pass up. Suffice it to say, the mother of all short-covering rallies ensued. Here is the after:
Bought on the Canons and Sold at the Close
The short-squeeze kicked in right at the open, and the market only stalled a few times, closing near the high and leaving a spike low on the charts. All of our levels held. As we pointed out, there was scant resistance up to 4300 on a pivot.
Day Traders following the plan laid out this morning made a lot of money. Swing Traders need to be patient. While the rally was impressive, it is primarily short-covering, not actual longer-term buying.
Source – SpotGamma.com
In other words, put selling accounted for the volume today. There was little to no call buying. To confirm a real turnaround, we need to see actual institutional buying and follow-through. We need greater call volume extending out to longer expirations. When that materializes, we will make our move for Swing Traders. The Navigator is close to a buy signal.
A similar spike low in January rolled over until the 5th day – and then followed through. We would look for the same behavior here. Until the next Fed meeting passes in Mid March, (negative) volatility will remain high.
I will update critical levels in the morning.
A.F. Thornton