Morning Notes - 6/29/2022 | Archimedes Methodologies

Good Morning:

The Narrative

Always monitor the Current Market Thesis for the big picture – it hasn’t changed since January.
Until otherwise negated, this is a generational, mean-reverting bear market that will take us to the middle of the 100-year channel (SPX 2500) over time.
The first bear leg (January-June) appears complete – It is a leading diagonal into the June 17th low at 3639 on the futures, behaving somewhat similarly to the 2000 bear market top.
The S&P 500 is now in a retracement rally, with the potential to retrace about half the January to June decline. The 2007-2009 bear is a good analogy for a similar retracement that occurred at this stage and time after it topped..
What is unique and challenging about this bear is the plethora of exogenous, global events typical of a “Fourth Turning.” Any of these events can stop a rally dead in its tracks.
When you think about it, the 2000-2003 bear was primarily about mean revbersion from a bubble. The 2007-2009 bear was primarily driven by a financial shock. The current bear market we are experiencing has both bubble and financial shock characteristics.
In other words, there is something to be learned by carefully studying both of these bear markets.
But for now, do not get married to any particular scenario or outcome. When in doubt, favor the bear trend.
This retracement rally is aligning with the seasonally strong summer rally period. The next 10-days are typically the strongest and most often repeated uptrend days of the year.
This week, the WEM Sandbox is 3815 to 4015 on the futures. We are in negative gamma which means high volatility.
The relevant lines in the sandbox this week are the 5 and 21-day lines. In addition, there is the formidable resistance from 3920 to 3950 we pushed down from yesterday. There is strong breakout support underneath us from 3775-3788.
The Navigator Algorithm gave a new buy signal on the daily chart at last Thursday’s close or 3762.25. The buy signal is still intact, but we protected our gains in light of the volatility with a rising stop. We stopped out Tuesday at 3788.25 for slightly more than a 100-point profit.
The next swing trade from the Algorithm is something we call a “cradle trade.” I cover that in the Trading Room., but you can see the trade illustrated in the chart immediately below.

Today's Issues

We pushed away from yesterday’s key resistance zone which peaked at 3950 and created some nice short trades in the room.
Key support today is now at the previous breakout level around 3788 and possibly as low as 3775.
We could also see support from the 3800 roundie and WEM low at 3815. Since there is nothing to guide us at the open, let the market settle in before making any big commitments.
Trading into Thursday’s month-end, quarter-end, and monthly options expiration sometimes results in odd behavior and unreliable market structure due to expiration, mutual fund rebalancing, and money manager window-dressing.
It is best to stick to day trading with rigorous discipline today and wait until next week before considering swing trades. I do not recommend trading tomorrow,
We will be in the Trading Room tomorrow (Thursday), but as it is that final day of the month and quarter, any trades must be well-considered if we trade at all. Nevertheless, it is always productive to observe.
The most important new and developing issues are a big, deflationary spiral in consumer goods due to bloated inventories, while food and energy prices continue to rise. It will be Christmas in July at Walmart, Costco, Target, etc. – so get ready for bargains.
Given recent events, the “Groupthink” of higher inflation makes no sense right now. Remember, government reports reflect stale data that is a month to two months old. The recent 40% collapse in copper, wheat, lumber, and other base materials is pointing to a short-term peak in inflation – assuming these markets have it right.
In that regard, and with quarterly earnings approaching, the bad news is bad news again. Bond yields may drop as inflation wanes, and the Fed can ease up. But they also reflect a rapidly deteriorating economy which is bad for corporate earnings.
The change will soon hit the market as it struggles with these two variables – potentially lower rates and waning earnings associated with a recession.
Always remember, no matter how brilliant anyone sounds, the truth is nobody really knows what comes next. Never forget that.
Our first clues will come from the bond market. Then it will spill over into stocks – which are affected by interest rates and earnings.
The price action will tell us what to do next, as it always does.
For now, we will stick to the day time frame – but watch for the cradle “swing trade” devloping on the daily chart.
Crypto is still treading on thin ice and could cause further market dislocations and contagion. It still has the potential to lead a complete crash and meltdown in these precarious markets.
Any new lows in Junk Bonds (JNK or HYG) would put me on high alert. These bonds are rapidly aproaching those very June Lows.

Red Letter Reports

Yesterday’s Consumer Confidence and expectations report appeared to reverse the market’s early uptrend, and the market went into a falling Gamma spiral, never looking back.
1st Quarter GDP and inflation were revised this morning – and the revisions went in the wrong direction.
Fed Chair Powell is speaking now, and we have Fed Speakers over EST lunch. Be aware and careful.

Today's Sandbox and Master Chart

Today’s Sandbox is above.
There is only one task today – get aligned with the trend (or lack thereof) as soon as possible.
There is only one issue today – will the breakout support at 3775-3788 hold, allowing a “C” leg higher into the rocket pocket above 3910 to take us to 4000. The market couldn’t do it yesterday.
If not, then we are headed for a full retest of the June 16th low, and I would consider the weak retracement of the leading diagonal ominous – a WWSHD moment.
You can see a failed diagonal leading the 2000-2003 bear market in the chart immediately below.

I don’t know what the market will do, but I know how to get aligned.
You will too if you join us in the Trading Room tomorrow.

A.F. Thornton

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Morning Notes – 6/29/2022

Morning Notes – 6/29/2022

The Narrative

Today's Issues

Red Letter Reports

Today's Sandbox and Master Chart

Share with Friends and Family

AF Thornton

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Morning Notes – 6/29/2022

The Narrative

Today's Issues

Red Letter Reports

Today's Sandbox and Master Chart

Share with Friends and Family

Related Posts

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