Founder’s Trading Journal – 10/16/2022

Good Evening:

• Volatility is in the air again this week. For Monday alone, the options market is pricing in +/- 60 points from Friday’s close (3597.50) for a 120-point day range. For the week, the options market is pricing in +/- 130 points from Friday’s close for a 260-point week range.
• The Founder’s Group continued to scale into long positions between 3610 and 3685 on Thursday and Friday after Thursday’s Navigator Algorithm Buy Signal kicked in.
• Technically, the signal painted just above 3600 on Thursday. But as we said then, the price did not confirm the buy signal unless the market closed above 3655, and it did.
• From there, our job was to scale in on pullbacks, and we got plenty of that on Friday. Our stop remains a few ticks under our proprietary Algo trigger line, which also moved around quite a bit on Thursday and Friday.
• Thursday was a day like no other. The turn was predictable, only a few points off our projected 20-week cycle low at 3509. The actual low was 3502.
• Still, the magnitude of the bounce was unbelievable. A day like Thursday has occurred only three times in history, and the market gained at least 10% in the ensuing weeks each time.
• For our purposes, Thursday saw a rare, bullish engulfing candle and true pivot on the daily chart, further confirming the buy signal and adding to the bounce case.
• As you will see from the first chart above, we could predict the timing of the low using cycle algorithms and projections. When the price crossed the 20-week FLD (Future Line of Demarcation), we projected the distance from the last cycle peak to the break to predict the low. The predictions are generally accurate within a small price variance.
• The 20-week cycle low (3502) should be in place. However, traders might push the market down to retest it before the market can seriously bounce.
• It is in the eye of the beholder whether Thursday was a successful retest of the June low, negating a retest of Thursday’s low before the price rebounds. As is typical on Fridays, the market left us hanging on the ambiguous edge of resolving the issue.
• What I would expect now, excluding the plethora of exogenous global events which could derail any prediction, is a bounce out of the 20-week cycle trough and then an eventual resumption of the bear. The 20-week cycle will likely have bearish, left translation in its wave structure. 
• Price targets for the 20-week are 3817.50, then 3915.50, then 4012.50. We may not make it that far, so I will be scaling out, starting at the first target, while also maintaining our trailing stops.
• The price should continue to the 18-month low forecast for early March 2023.
• Conceptually related to the 18-month cycle low, the price is also bouncing off the 200-Week Moving Average, where most oversized corrections and cyclical bear markets end (2016 and 2018 are good examples).
• Coincidentally, not far below 3502 lies the 4-year cycle FLD. Generally, if the market starts closing below the 4-year cycle FLD, you can measure from the all-time high to the break and project it down to forecast the ultimate low.
• On the first chart above, I took a theoretical break at 3502, resulting in 1306.25 points from the January market top to the break. Projecting 1306.25, down from the theoretical break at 3502, gives the price a downside target of 2195.75, very near the China Virus Crash lows in March 2020.
• Time-wise, that low is not due until the summer of 2024. And we have a rest stop at the 18-month cycle low in early March 2023 to keep us busy until then.
• Still, we have to consider that the price could get to the projected target early (like the 18-month cycle low forecast for early March), with the “time” element resolving with a retest of the March low on the 4-year low forecast for the summer of 2024. There are many examples of these variations if you study past bear markets.
• The point is the 4-year cycle FLD is what separates bear markets like 1929, 1973-74, 2000, and 2008 from the rest of the crowd. What kind of bear will this be? From everything I see right now, I would bet on an eventual break of the 4-year FLD and 200-week Moving Average like 2000 and 2008-2009.
• But let’s at least look for a rest stop at 3375 or so before the 4-year low sets down.
• Anyway, it is all theoretical as we have not violated the 4-Year FLD as yet. I want you to be aware of the prospects.
• And what we have now is a cascade of cycles nesting on each other, which is a rare occurrence, normally leading to a pause, if not an outright bounce.
• As I always advise, avoid the “all or nothing” thinking. Go to the Latest Stock Market Forecast in the Categories menu to your right. I wrote that macro forecast originally in January and updated it in March. Nothing has changed. We could be entering a trading range market just like the similar period in the 1970s. That would support lows here and a sideways market for a while, like the 1966-1982 market. It is not my base case, but I keep it in the back of my mind.
• The point is we have 600% plus gains this year because we follow the price and algorithms wherever they want to take us, and we try our best to leave our bias in the hallway before we step into the office.
• And need I remind you that everything I told you more than two years ago has come to pass? I said inflation would come roaring back. I told you that a “Fourth Turning” was coming, referred you to the 1997 book, told you it would be miserable, and even featured an interview with Neil Howe, the co-author of this seminal work, on these pages. I told you about the World Economic Forum and the Great Reset to Collectivism and Authoritarianism. And finally, I told you not to fear the China Virus – fear the shot.
• My partner thought I had lost it several years ago, and I am sure many of you felt the same. Yet, now you know I wasn’t crazy as we continue to suffer the consequences of President Orwell and all of his WEF handlers.
• Nothing has changed. We are in an existential battle for the freedoms and values we have taken for granted. Every conspiracy theory I have ever heard seems to be coming true. We are watching history unfold in real-time right in front of our eyes.
• By the way, did you know we are also invading Haiti? Look over here… You cannot make this stuff up. And what might the market do if Zelensky and Ukraine give up the fight? There is little left of the Ukraine Army (or our taxpayer funds).

A.F. Thornton