Door Number Two – Up, Up, and Away

Good Afternoon:

• This morning I mentioned the rising wedge pattern on the daily S&P 500 Futures chart – I guess we could call it “Door Number Two.” See the chart from this morning for more detail. “Door Number One” was the crash promoted all over the internet lately.
• And while I cannot say I thought higher prices were the most likely scenario, I have been beating the “Door Number Two” drum lately about a final leg up to at least 4075 before another meaningful correction ensues. The price closed today at 4087.
• I also mentioned the Door Number Two, “Pain Trade,” this morning. Call it whatever you want, but Murphy’s law usually kicks in when the crowd is lopsided, and one part of them is poised to lose a lot of money. In other words, I ask myself every day how the market could ^&&* the most people simultaneously. Today, we observed the “Pain Trade” in all its glory, punishing the short sellers.
• Call it instinct, but I never joined the “crash crowd.” Recall our video “Where’s the Crash?” at the October 13th low? The footage looks downright sentient now. Fading consensus isn’t easy, and the timing has to be right. As then, everyone thought they had this one figured out today. But I had one of those gnawing feelings that the crowd was about to get a surprise.
• Of course, I don’t operate from feelings. I use objective algorithms because they work. 
• The algorithms took us out on 11/24 at the recent high and got us back in on the trendline, weekly, and daily means today near the low. The signals were nearly perfect, as seen from the hourly chart above. 
• Even more helpful is the fact that the new algo predicted a turn at 3947 in the 10:00 am EST hour today. But the prediction was made in advance several days ago. The price, timing, and turn practically hit on the nose; 3942.75 during the designated hour.
• Additionally, two traditional Navigator Algorithm buy signals painted this morning – a few hours before the market reacted to Fed Chairman Powell’s speech. You can see the signals in the chart above. Honestly, taking the cues was tough, but the rest is history.
• I will cover more of this in tomorrow’s outlook, but I wanted you to see the power of the new day-trading algorithm – even as applied to the hourly chart.
• The biggest challenge now is that price has traveled nearly to the top of the pattern in a single day. But it has room to go higher, depending on whether the rising wedge pattern completes or we morph into a normal uptrend. We will evaluate the subdivisions of the rise for more clues in the coming days.
• And, of course, a lot of this is short-covering. We need real, follow-through buying to confirm the rise.
• The Founders Group has already sold half of our leveraged position, and we are holding the other half as a runner to see if prices can increase.
• And this move is more confirmation that the 10/13 low may mark the middle of the four-year-cycle and mid-term election pause and perhaps even the bottom of the 60-year cycle.
• Still, the last third of the 60-year cycle, including its 20-year and 18-month components, show downward pressure on prices into March. But when the price bounces out of a low like October with this kind of velocity, you can be sure that larger cycles are at work.
• I will produce a video on all of this soon.

Have a great afternoon. We learn to enjoy days like this because it all starts over in the morning, and the battle begins anew.

A.F. Thornton