Morning Notes – 7/5/2022

Good Morning:

• As always, monitor the Current Market Thesis for the big picture – it hasn’t changed since January.
• Some of the dicussion below is repetative, but that is what a “Narrative” Is all about.
• I will be publishing a  video later today that is focused on the Macro Thesis and big picture.
• 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 that market topped.
• The retracement has bounced in a cradle trade as of Friday. The short-term market structure on the daily chart is ambiguous. That puts the Algo line at 3735 as a line in the sand. Any close or sustained price action below that line shifts the short-term picture back to bearish and raises the issue of whether the this intermediate down leg is complete.
• The unique and challenging aspects of this bear are 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 reversion 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 9-trading days are typically the strongest and most often repeated uptrend days of the year.
• This week, the WEM Sandbox is 3728 to 3828 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 3810 to 3830. There is strong breakout support underneath us from 3775-3788. Draw your trendlines and high volume nodes too.
• The Navigator Algorithm remains in a buy signal on the daily chart – and we took a 10% swing position at  Friday’s close. We purchased August monthly (at-the-money) SPY calls. The futures were trading at 3748.50 on our entry. The buy signal is still intact, and we would like to scale into more calls if the stop holds today. The stop is at 3734.50 this morning,
• We have a factory orders report coming out 30-minutes after the open, so we are unlikely to take any day or swing positions before that.
• Overnight trading is a bit complicated due to the July 4th Holiday. It appears that the Globex traders took out the stops above Friday’s highs, then rolled back down into the range. We are slated to open in the lower half of Friday’s range at this writing.
• I don’t see an opening trade, and I would wait until after the Factory Orders report at 10:00 AM EST to ponder positions.
• We will be in the trading room this morning until about noon EST. 

Have a good trading day.

A.F. Thornton