A double top is increasingly less likely, as we have a gap higher this morning (Gap Rules apply). Sometimes, we get a “gap and crap” as we affectionately reference it, but that is less likely as Facebook did not disappoint in their quarterly earnings last night. Moreover, the short squeeze in Tesla was something to behold yesterday, after Hertz announced the order of 100,000 Tesla cars.
More likely, we are back to a gamma spiral higher. As we are in the new high territory, there is no definitive upside resistance. The Weekly Expected Move high on the S&P 500 futures would be my target for the rest of the week, just below 4600 at 4594. Of course, 4600 itself is a magnet. Above that are Fibonacci targets. The 127.2 extension is at 4629, and the 161.8 rests above that at 4728.
If we head south, the market should find support at the former all-time high around 4550. I would get aggressively short if that level failed. Other than that, I will watch the Globex low, the previous day’s halfback, and the previous day’s low as we move along. Until the market closes below the previous day’s low, there is no potential trend change.
This could very well be the early stages of a hyper-inflation-driven stock market melt-up. I shudder at the thought because it won’t end well. But I am carrying the possibility forward in my narrative.
As always, how the market handles the morning gap will tell you a lot about the day ahead. Overnight inventory is net long, so there should be some profit-taking at the open. The trend is then likely to resume higher. The less the gap fills on the fade, the more positive the market. If there is no fade, what else do you need to know?
Traders should note all of the Gaps below us in their narrative. Gaps and spikes lead to poor structure and lots of air pockets. They increase the likelihood of short-term liquidation breaks. While the breaks are typically short-lived, they can be nasty for the uninitiated.
As usual, mark the open and look to go long when the market comes back up and through it on a pivot. The 10-day wave just bottomed and is moving higher, even though the trough is barely discernable. While we have a few more FAANGMAN stocks reporting, the Fed meeting next week is the next focus.
Interest rates will increasingly provide headwinds. But in hyperinflation, what matters are companies that have pricing power, and the market could rally despite rates. Check out INFL, an ETF that focuses on companies that do well in an inflationary environment.
Let the market tell you what it wants to do. How the market handles the morning gap is the most important MGI (Market Generated Information) this morning.
A.F. Thornton