This morning – I mentioned balance rules applied which you can find here. The second rule is applicable today – and it is classic:
“Look above and fail. Prices move above the balance area high but fail to find acceptance and reverse back into the balance area. This is now a short, with a stop above the high just made above the balance area, with a target to cover at the opposing low end of the balance area.”
Now, click the chart to enlarge it. The balance area high is marked at about 4193 and the low at 4166. While we were expecting a counter-auction at the open, both because overnight inventory was 100% long and we had a true gap (likely to fill at least partially), the market should have turned at or near the balance area high around 4193. When it didn’t, the target was the lower end of the balance range – 4166. The S&P 500 index just completed that process. This was a classic application of the rule.
While a bit sophisticated and more related to gap rules, had you placed a short a few ticks below the low of the first one-minute bar, with your stop a few ticks above it, you would still be in that short now, depending on your exit strategy. Of course, you could also have shorted as you dropped into the range.
Put this update in your trading notebook.
Let me also comment on the WWSHD (when what should happen doesn’t). This is a failed breakout – unless there is a major turnaround before the close. Add that to your market narrative. Moreover, after earnings announcements, several key stocks popped higher and then reversed. This trend has been going on for a few weeks now. This indicates to me that the market is getting tired.
Two FAANGMAN stocks, Apple and Google, blew out their earnings last night. Fed Chairman Powell had kind words. President* Biden promised us a utopian future if we only give him another $6 trillion – on top of the current $30 trillion of debt already on the books. I am not even mentioning the unfunded liabilities off the books.
After all of this, the market delivers a failed breakout? My friends, the 18-month cycle peak is likely close at hand. By the time most traders realize it has started, the market will likely already be halfway through the correction. It will be swift and brutal, at least in the early stages.
The market may pivot now that the bottom of the balance range has been tagged. If it doesn’t, look out below. Next stop – 4117.
The Navigator Swing Strategy remains 100% cash.
Be careful!
A.F. Thornton