Morning Notes – 5/12/2022

Good Morning:

• I don’t mention it every day, but the Navigator Swing Strategy remains in cash with an extraordinary year-to-date return.
• We are at that stage where a capitulation or waterfall low is likely to end this first bear phase, and I would prefer we enter either during or after that phase is complete.
• There are respectable arguments on both sides of the market. Some believe that this market is ripe for a 1929 type of crash.
• Even I could argue for a top to bottom 75% decline if the market were to tag its 100-year channel bottom.
• Nevertheless, I will vote for the middle ground. It amazes me that I have not had to tweak our Market Thesis since I first published it in January.
• The market has made the measured move for a “correction” at current levels. And perhaps the WEM at 3985 can draw prices back up before tomorrow’s weekly expiration.
• Going lower beyond current levels (the market is at 3896 at this writing) would find support clusters around 3750 and 3500. I know those levels run deep, but they are what they are.
• At 3500, we are still well above our ultimate target of 2500, where I would expect the bear to end.
• But I am unaware of any “May” stock market crashes in history. They usually arrive in October. And given where we are and the literal washout in negative sentiment, I am still viewing this decline as phase one, with some relief due at any moment.
•  The street is mega-short, and I doubt the crowd will be correct. Lopsided positioning such as this is ordinarily unsustainable. Yet I still ponder what will rise from the depths of hell to more downside.
• I suspect that a currency issue is in the offing. We have already discussed the crashing Japanese Yen, but this has also put pressure on the Chinese Yuan. Yesterday, even Hong Kong started tweaking its local currency.
• Treasuries started to find some footing yesterday, and that may be the first indication that a short-term bottom is close at hand – unless it is a flight to safety. There is considerable chart resistance to the 10-year rising above 3.2%.
• The good news is that I don’t care what has happened or even what will happen, as my focus is today and what is in my windshield. I know a bottom when I see it, and I will communicate it to subscribers in real-time.
• And by the way, China is in deep, profound economic trouble between lockdowns and its imploding real estate market. They were in a financial crisis long before Russia invaded Ukraine.
• Another sign that a low may be close is the market taking the generals out to the woodshed. Mighty Apple is the latest (and perhaps the last) to take the fall.
• I am fortunate to have an extraordinary partner in this endeavor. Michael is nothing short of a software genius and problem solver.
• We started this endeavor to manage our family funds. On Monday, we discussed how vital patience is in this and most endeavors. Right now, we need to be patient and wait for our moment, especially from an intermediate perspective.
• We are day trading with subscribers, so there are benefits to the volatility if you know what you are doing. But taking a longer-term position is not advisable until that moment arrives when the crowd caves. We await that moment.
• So let’s find a tradable bottom. This market is in capitulation territory.
• I am looking for resistance today at 3900, then 4000. Support is at 3865. We are so deep into put territory that negative Gamma will start to decrease at 3800.
• Gap Rules are applicable this morning. Use the fill/no-fill as your first clue to directional bias.
  

Stay tuned – we are here to help in any way we can.

A.F. Thornton