Morning Notes - 6/27/2022 | Archimedes Methodologies

The Day and Week Ahead

Good Morning:

We had a good forum on YouTube Live last night, but the video recording did not come out well, so I deleted it. I am working on a solution – but I think I ran too many monitors, creating a feedback loop.
We will hold the first “live” version of Morning Notes on YouTube this morning from 8:30 to 9:00 am EST. The link to our YouTube Channel is here.
The first Bear leg (1-down) is complete – It is a leading diagonal much like the start of the 2008-2009 Bear Market.
The S&P 500 is now likely to retrace 50% (4150) to 61.8% (4338) of the January to June decline in a (2-up) wave retracement. Again, the 2008-2009 Bear is the best analogy.
Be sure to look at our current Market Thesis (to your right in the “Categories” menu) for a complete Big Picture analysis.
This retracement rally aligns with the seasonally strong summer rally period.
This week, the WEM Sandbox is 3815 to 4015 – Today, the DEM Sandbox is 3850 to 3975.
The Navigator Algorithm gave a new buy signal on the daily chart at last Thursday’s close or 3888.75. The short-term trend and context are up. For the most part, we want to look for long trades this week on pullbacks as long as the rally prevails.
But we are still in a bear market in the intermediate trend and trading on the volatility trigger at 3905.
Below the volatility trigger, dealers still must sell into declines and buy into rallies, exacerbating and lengthening the move in both directions.
Above 3905, Dealers will sell rallies and buy declines, reducing volatility and resulting in “mean reversion” price behavior.

Key Levels and Issues Today

The key inflection point today and for the rest of this week’s sandbox is the super high-volume node on the daily chart at 3910-3920. The node is a significant hurdle to conquer coming from either direction. There are substantial air pockets above and below the node, allowing the market to move quickly, regardless of the direction it chooses.
Coincidentally, the 21-day line (mean) at 3903 is close to the super high-volume node, as is last week and Friday’s high at 3920. It would be short-term bullish if the market could stay above these levels, and we could look to them as support.
The opposite is true if this rally fails early, as this is the level to push it back down.
Overnight traders have already helped the bullish case, first testing 3895 but later besting Friday’s high (bullish) and trading as high as 3948. As a result, the S&P 500 could open with a True Gap higher. If so, Gap Rules are on the table.
If last week’s rally fails here, the relatively minor support in the air pocket below is Friday’s POC at 3890, its midpoint at 3875, the 5-day line at 3856 (also the low volume node of the pocket), Friday’s breakup candle low at 3831, and then the WEM low at 3815.
Though ostensibly outside this week’s projected range, the air pocket ends at 3761, and the next super high-volume node on the daily chart is 3688.
My best judgment – the market is likely to use the bullish seasonal bias and tailwinds associated with month and quarter-end to push up and through the air pocket into the WEM high this week at 4015.
Going north to the 4015 WEM high, the index will encounter resistance at the 3960 Gap bottom and the downtrend supply line from March at about 3995. The falling 50-day line tracks close to the downtrend line.
I am noting that there was still a lot of put buying on Friday and the options vaccum into 4000 is filling in. More and more 4000 looks like a realistic target, but it is getting harder to target anything above that level for now.

Red Letter Issues and Caution

We are still in a bear market until proven otherwise. So don’t hold any opinion too tightly.
Don’t forget that there are exogenous events all over the world that could rear up at any moment. Do not trade without stops.
Today, we have durable goods coming out pre-market and existing home sales about a half-hour after the market opens. Some European Central Bank speakers give presentations later in the day, but otherwise, today looks quiet on the home front.
Recall that Friday’s existing home sales report threw the market for a loop as it was much higher than anticipated. I was about to short a rising wedge when the news came out, and the market ripped higher. Be careful.
Friday was a range expansion day, and today could follow suit with scant resistance in the air pocket above us. The street has been quite short lately, and Money Manager FOMO leading into the end of the calendar quarter and monthly options expiration on Wednesday could provide tailwinds.
Nevertheless, contraction typically follows a large expansion day like Friday. Consolidation could lead to balanced, responsive trading in today’s RTH Session.
While I generally get all the information I need to know from the S&P 500 price action itself, Junk Bonds (HYG or JNK) can be a good leading indicator for stocks. I would shift my short-term stance to bearish if Junk Bonds fell to a new low on the hourly charts. Set an alert to keep track of this.
Crypto is still trading on thin ice and could cause market dislocation and contagion in a meltdown. Keep an eye on it.

It is nice to see some green on the screen for a change. Let’s enjoy it while it lasts. For all we know, the bottom could be in for a “cyclical” bear, and the market will march on to new highs.

The truth is we don’t know. We never know. Our job is to read the tape and follow it wherever it leads.

A.F. Thornton

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Morning Notes – 6/27/2022