Founder’s Morning Notes – 2/28/2022

My overall sentiment is that the market is holding up well under the circumstances this morning. But we should take nothing for granted.

• Use caution as this is the last trading day of February, and money managers could be window dressing as the day wears on.

• The WEM Range is still wide this week from 4269 to 4492.

• The Fed Meeting looms in two weeks (March 16th) and may be one of the most critical meetings in some time. The market’s current rebound is partially due to reduced expectations for tighter monetary policy due to adverse global events.

• I believe that the uptrend is limited until there is clarity on monetary policy. Clarity around policy can reduce incentives to maintain put positions, reduce volatility, and drive higher markets. 

• Futures gapped down significantly in Globex last night, retraced below Friday’s low, then bullishly pivoted near the WEM low, and came back into Friday’s regular session range. The index positively recovered about half the losses, and Thursday’s swing low and value area remained out of bounds and secure overnight.

• The double bottom positive divergence in the Russell 2000 (IWM) looks interesting. In contrast, the S&P 500 and NASDAQ 100 achieved new intraday lows on the retest. The IWM divergence underscores the observation that the broad market may be starting to recover as the large-cap stocks finish correcting.

• Note the fairly significant shifts in our key levels as strips of in-the-money options (both calls and puts) were closed Friday.

• High volatility should continue again today, but less than last week as put fuel has drained out.

• Resistance today starts at 4355, then 4380 and 4402. Support lies at 4307, then 4250.

• I am bullish above the overnight high at 4383.50, tipping to bearish below Friday’s regular session low at 4281.50, and running for the hills below the overnight low at 4241.50.

• SPY/QQQ options flow shifted from long deltas (bullish) to short deltas (bearish) on the break from 4350-4400. But the largest strike (open interest) has moved back to 4400. The market may have reverted to equilibrium after the solid short-covering rally.

• Early traders will likely be repositioning, which is exploitable by nimble and experienced traders.

• The overnight low at 4251.50 came down to the base of the spike from the 2/24 regular session, indicating that sellers were not as strong as they seemed on that initial panic last night (Sunday). I would also carry this level forward as weak.

• Higher odds trades will develop later rather than earlier in the session.  
  Given that prices are susceptible to the news, it isn’t easy to pinpoint exact potential scenarios.

I am trading from the starting point that the 2/24 low is secure, and sellers are losing control. I would start to abandon that narrative only if we were to develop value today low in the 2.24 regular session range.

A.F. Thornton