Interim Update 8/11/2021

Since I had to work the last two days anyway, here are my notes today. The market never rests, even though I need to from time to time. As always, take it in slowly from left to right.

After the market gapped open, the bears took control. When the index opens that far above the mean, the only question is this: how long will it take to drive the market back to it? Today, the market reversed lower and sliced through the mean, filling the entire gap. The gap-fill bottomed with many other important support levels, and the market reversed higher into the close on a small head and shoulders reversal pattern, forming the head of an even larger reversal pattern. The market ran out of time to complete the pattern. The pattern could resume overnight or tomorrow.

It is noteworthy that the decline was large enough, once again, to force another trading range. The open acted as a magnet late in the afternoon, just as it has on all the range days in the past week. Note that the open drew the market in like a magnet, whether it happened to be above or below the morning action on this and other sessions.

My biggest concern here is the labored progress into a rising wedge on a number of the indices, including the S&P 500 Index:

As with all chart patterns, they do not always pan out. Nor does a break of the pattern ensure a decline any further than where the pattern began.

Nevertheless, this is a reversal pattern into what is normally the peak of the nominal 40-day cycle. I like to be in cash mid-month anyway. But if the decline begins or happens overnight, we can be stuck in our calls. So we sold our SPY calls into the strength at the open today.

We also sold our remaining XLF position. The price has literally gone parabolic, reached its Weekly Expected Move, and it was in a good place to take profits this morning. We can always repurchase it. 

We have retained the XLE position, and it had a nice day too. But it has lagged a bit, so I will monitor its progress for the rest of the week.

Now I am really going to try to take some time off.

A.F. Thornton