Navigator™ Swing Strategy – Buy on Dips to the 5-Day Line / Navigator™ Day Trading Strategy – Bias is Long – Looking for a Partial Gap Fill.
You will start believing in my magic after yesterday, if not sooner. The market must have read my script. It dipped right to the top of the Weekly Expected Move at 4675 (actually 4672), bounced, tagged it one more time, then went into a bull microchannel to close at a marginal gain over Tuesday. Of course, the price action was mainly inside the pinned range established after Tuesday’s (as yet) unfilled gap opening. In a sense, then, the market is still balancing at the top of Tuesday’s breakup candle.
Given the bullish recovery on Monday and Tuesday, I theorized that the market makers must have jumped to neutralize their deltas right at the WEM high, lest the market leaves them hanging again later this week. And I almost issued a nibble signal to start accumulating with them, but I am more inclined to buy below the WEM high and closer to the five-day line.
That reminds me – breakouts fail 80% of the time. We would need a breakout for any meaningful swing profit from 4672, and I don’t want to go through a drawdown first. Patience is a valuable commodity in this business. Remember that we always look for the “cradle trade” after the first run through the Navigator™ Algo trigger. And even with all of that, we might still be at the top of a new trading range.
And the Fed meeting announcement is now less than a week away. It seems insane to take any position before that meeting. Yet, they have already forecast a decision that seemingly would be the worst case. If the market is rallying, perhaps that means the market welcomes the Fed fighting inflation – though it will be difficult to avoid a recession as the Fed already blew it with their “transitory” nonsense.
If I am thinking about anything this morning, it is why interest rates are so low. With the short-term rates still close to zero and falling again, why would anyone find the rates acceptable? After all, if you bought treasuries a year ago, you lost money in real terms.
If you cash year-old treasuries, you can only buy 80% as many groceries, 70% house, 70% car, 50% gas, etc. An institution buys the sovereign debt of many countries, including the U.S., with balance sheets well over 100% of GDP. Sovereign debt levels, by any measure, are unprecedented at this writing.
Institutions all over the world are not dumb. The only reason I can think of as to why they would find negative “real” interest rates acceptable in this environment would be that they are more concerned about the return “of” their money than their return “on” it.
In that sense, then, would not higher interest rates be a good thing? Would they not signal a more robust economy? Less fear?
Swing Traders
We are looking to buy a “continuation” trade. But so is everyone else. We look to avoid a bull trap at these levels. We have a range of support from the Navigator™ Algo trigger at 4611 to the five-day line at 4655. Somewhere in that zone makes sense for an entry, fully recognizing that we could be buying in the middle of a new trading range. And that is the point now. This new market is more volatile. The easy times are behind us with the apparent shift in Fed policy.
Day Traders
I seriously doubt I can top yesterday. I still think the WEM high (now solidified around 4672) will be a magnet the rest of this week. I have seen the market balance a few points around it in the past, with the WEM high level in the middle. Looking to the left on the daily chart, we could see a similar, symmetrical, tight, range pattern form to the right.
Since the overnight action is inside yesterday’s range, use the overnight high around 4700 and the overnight low at the WEM high of 4672 as your breakout points today. The more time spent at the WEM high, the more market makers have the opportunity to hedge their unpleasant experience from Tuesday. A break of yesterday’s low at 4672 would change the tone back to negative – at least down to the five-day line at 4655 or so.
Capturing the hill at 4700 has been the battle of the century now since November 5th. Does persistence beat resistance? Perhaps if the Santa Claus rally is on tap. First, target the VPOC at 4715 if the market can poke above 4700 today. Then target the all-time high that sits 4740.50.
The cycles and seasonal patterns don’t forecast clear sailing until the 15th, also the Fed announcement day. And as we found out over the Thanksgiving holiday, seasonality may not matter this year.
Overnight inventory is net short, so a small pop near the open is in order while Globex traders take profits. I plan to mark the opening range and project it in both directions. When the range breaches, that will be your first clue. I would pick up two contracts.
Take your profit on one at the breach range target. Hold a runner if we have a solid break above 4700 and target the VPOC at 4715. See how it goes from there. On a short position, take a profit at the breach range and hold a runner if we start trading below yesterday’s low (also the top of the single prints) at 4666, with a final target in the 4655 to 4622 range. Look for a pivot from one of the key lines. The five-day, 21, or Algo trigger start at 4655.
A gap-fill starts at 4747.25. At the other end, the all-time high is 4740.50.
Good luck today. Stay alert for a swing trade signal.
A.F. Thornton