AF Thornton | Archimedes Methodologies

Founder's Trading Journal

Morning Notes – 5/20/2022

May 20, 2022 AF Thornton 0 Comment

Good Morning:

It has not been easy to focus this week as I lay my mother to rest.
Knowing that she died from vaccine complications is an even harder pill to swallow.
But the hardest pill to swallow, as both a son and patriotic American, is that the Biden regime is about to cede our health sovereignty over to the World Health Organization, the very corrupt fraudsters controlled by the Chinese Communist Party who lied through their teeth to us and screwed up the Covid-19 Pandemic.
The bribes paid to the Biden Crime Family by the Chinese Communist Party and others seem to be paying off, don’t they?
Ukraine is now $40 billion better off for it.
Now the U.S. will cede its health sovereignty to a corrupt global government. The WHO is part of the same United Nations crowd that hates the United States of America. They are avowed leftists and communists.
You can learn more here and here.
We are losing our country and rights so fast it makes your head spin. We better wake up, or it will be too late. We all need to contact our representatives in Congress and protest this outrageous move toward World Government.
November elections? Please don’t count on them. At this point, the national elections seem just as rigged as the big city Democrat machine elections. And the left may find reasons to cancel or alter the elections like they did with Covid-19. Monkey Virus, anyone?
Did you ever think you could see our nation virtually collapse in less than 15 months?
Yes, they are reprogramming gas pumps around the country for $10.00 per gallon gas. Apparently, many of the pumps only go to $9.99.
The left will never relinquish power now that they successfully stole it. Be prepared.
If you want to know how they stole the election – start with the new documentaries “2000 Mules” and “Rigged.”
As to the stock market, I have not been glued to my screens this week. But the Founder’s Group scaled into some July SPY and QQQ monthly calls over the past few days.
We did not announce these trades to subscribers as I did not feel my usual confidence level when I am in front of all my screens. But another Navigator swing buy signal is painting, depending on how the market closes today.
The swing buy requires a successful retest of the May 12th low, which is underway.
I will let subscribers know if the signal will move forward by the end of the day. Consider a subscription as it more than pays for itself. As with recent signals, the idea is to get to break even as fast as possible and then move the stops up with the swing to lock in a profit.
Futures are higher to 3940 ahead of today’s monthly expiration. Volatility estimates continue to hold at 1.2% (open/close), and we anticipate this changing for Monday due to the roll-off of put positions. Resistance is at SPX 4000-4015 (SPY 400). Support shows at 3950 and 3900.
A market push to 4000 SPX (SPY 400) and 300 QQQ likely relieves any monthly expiration pressure – and the moves could happen today into Monday.
If the market tags these respective targets, that likely withdraws any significant options-based support for the indexes.
Price action at or below 3800 should produce buying from dealers, but this level shifts to 3700 after expiration.
This general trend of traders uninterested in calls and systematically rolling puts “down & out” suggests an acceptance of (and positioning for) lower stock prices.
Watch for a True Gap open and apply Gap Rules if the gap occurs. At this writing, the market is still inside the top of yesterday’s range.

Have a pleasant weekend – summer is almost upon us.

A.F. Thornton

Founder's Trading Journal

Morning Notes – 5/18/2022

May 19, 2022 AF Thornton 0 Comment

Good Morning:

If you were a subscriber this morning, it would be a good morning as we were in cash yesterday.
As I indicated on Monday, I am in the throws of the death of my mother, memorials, and funeral arrangements – so I have been distracted. But I am not sure I would have expected such a severe reversal yesterday.
The rising wedge on the hourly charts I mentioned yesterday morning did call for some profit-taking – but not a complete retest.
It was many years ago that I read all the books one would read before pursuing the dream of trading for a living. And the books definitely need improvement, which is why I am working on my own.
Chief among my complaints in the existing literature is this: the books never discuss the principle that “When What Should Happen Doesn’t,” or WWSHD as we call it, is a setup in and of itself. I believe that I first heard the phrase from Peter Reznicek, who incidentally has one of the best trading websites around.
What they don’t teach in the books is that if the particular setup fails, the failure in and of itself may be a signal that something in the opposite direction is afoot.
Coming into yesterday’s session, I had several observations. I postured that the options market would be providing some Vanna tailwinds into Friday’s monthly expiration. There was a Head and Shoulders reversal pattern on the hourly charts. While I have seen steeper patterns, it was a sign that a “V” reversal may have been underway.
What a “V” reversal means to a professional is that the low in place may not need to be retested. Normally, one would not plunge back into the market on a new 52-week low such as occurred in the market a week ago today on 5/12. Instead, you would wait a week to make sure the low is secure.
But the low from last week did appear to be secure when a follow-through day was successfully presented on Tuesday to confirm the pattern. As you will recall, our swing trader subscribers scalped about 40 S&P 500 points before being stopped out on that day.
The bottom line is that yesterday’s steep reversal was unexpected – at least I didn’t expect it.
Yes, Walmart, Target, and now Cisco (after the bell yesterday) all gave dismal forward guidance in the past 48 hours. The stocks were decimated. But I don’t understand the surprise. Anyone with half a brain should have expected as much – but apparently the street was caught off-guard.
We will never know if the current retest of last Thursday’s low was in the cards anyway, or is the result of the news. In any event, we have a retest today – exactly five trading days after the low – which is exactly when one would expect the retest to occur.
Either the retest will be successful, and my best guess is that it will, or we will have a genuine “3” count crash leg underway.
A crash is a low probability event, typically reserved for the September/October time frame, but anything is possible in a bubble. But the probabilities are low at this particular time of year and I don’t want to ignore the fact that the S&P 500 is already down 20% from its January peak.
There typically is a recovery leg about now that would at least take us back up to the 21 or 50-day lines if past bear markets are any guide.

Also, bearish sentiment can hardly move lower, and the institutions are sitting on a lot of cash. It would not take much of a match to lite up some FOMO – especially if the retest is successful.
Interest rates have been backing off this week, which could be helpful on a retest.
Tomorrow’s monthly options expiration does complicate my predictions a bit. Overall, I still believe that the expiration will provide tailwind support at least back to S&P 500 4000. But that could occur from a much lower level than the 5/12 low.
The market always bounces at least once off the former low and that has happened overnight. It makes a lot of sense to wait this out and see where this market is early next week.
It will be a rough ride this morning, and I will not be married to my computers as usual, but it seems silly to be selling or shorting into this much bearish sentiment.
You would be betting on a crash which must be studiously managed tick by tick not to get slaughtered in a rip-your-face-off short-covering rally.
Bottom-line – cash is king and I have no confident predictions. My best advice is to see where this market is next week.
Gap rules could be in play – monitor the open just in case.
Also note that SPX 3925 is the WEM low this week and we are on it this morning. So Dealers and Market Makers will be defending 3925 this morning,

A.F. Thornton

Founder's Trading Journal

Morning Notes – 5/18/2022

May 18, 2022 AF Thornton 0 Comment

Good Morning:

Futures are down slightly this morning to 4055 ahead of the 9AM ET monthly VIX expiration.
Our volatility forecast for the day remains in line with recent estimates – about 50 points plus or minus the open.
Resistance comes in today at 4100 SPX then 4115 (410 SPY). Support starts at 4060 (SPY 405) then 4000.
As is evident from the chart above, 4000 remains the key strike ahead of Friday’s monthly expiration and pinning around that level remains a high possibility.

But the question remains – where is this market, and should we continue to wade in after being stopped out with a nice profit yesterday?
The theory behind investor sentiment is that when sentiment is overly negative, the selling is close to complete, and there will be mostly buyers left.
Retail investors are usually overly net short the market by this time. A short-covering rally typically starts the ball rolling north again.
Then, as the market recovers, FOMO kicks the rally into high gear as the institutions join the fray.
Of course, these are bull market tactics, and they have served me well over the years.
The market is experiencing extreme bearishness lately, with the CNN Fear and Greed Index as low as eight last week.
With this in mind, the Founders Group took the Navigator Swing Strategy to a 90% invested position in SPY calls Monday at 4019.75. We had managed to move our stop up to 4065.25 yesterday before getting stopped out in the volatility that followed Fed Chairman Powell’s speech.
There is also a rising wedge pattern on the hourly S&P 500 index chart, which needs to resolve before we reenter. And there is formidable overhead resistance, though a positive reversal pattern may indicate that the market may be able to labor through some of the resistance. (See yesterday’s Morning Notes).
But the question remains, is bearish sentiment a reliable contra-indicator in the current market environment?
My biggest concern right now is the shortage in diesel fuel, which is about to grip the northeast. Both Pilot and Love’s travel stops are warning truckers of potential rationing.
We have shipped a lot of our diesel fuel to Europe to help them through their crisis. This creates shortages on the East Coast. Now, the West Coast will try to help the East Coast and the shortage will spread west.
Nearly everything in our Country is transported with diesel fuel. Trains, trucks, you name it. Even gasoline has to be transported in trucks that use diesel fuel.
I was laughing to myself this morning. In my heyday, I had a 70-ft Yacht. When I bought it, diesel fuel was .065 cents a gallon (this was around 2005). The vessel held 3,000 gallons.
Granted, it was expensive, but I could still use my Amex card to fill it up for less than $2,000. Can you imagine now? it would cost $19,000 to fill. And with boats, you measure fuel used by the hour – not mile.
The point is that this diesel shortage is a very serious threat to the economy, and will be making headlines soon. Rationing will elevate concerns. If you are thinking of ordering anything to be delivered by UPS or FedEx, the sooner you order the better.
Yesterday, Bank of England chief Andrew Bailey issued an ‘apocalyptic’ warning about food prices and admits he is ‘helpless’ to do anything about inflation… while urging Britons NOT to ask for pay raises.
My point in raising these issues is that while Wall Street’s mood may be apocalyptic, it is well-justified.
In a bull market, bullish sentiment can remain elevated for long periods. Though we don’t get as much practice at bear markets, bearish sentiment can remain elevated for long periods in a bear.
So our best strategy for the foreseeable future is to scalp gains wherever and whenever possible. Bearish sentiment is helpful, but it is not the same, reliable indicator that it was in the raging bull market.

Batten down the hatches and stock up. You will be glad you did.

A.F. Thornton

Founder's Trading Journal

Morning Notes – 5/17/2022

May 17, 2022 AF Thornton 0 Comment

Good morning:

Lack of follow-through marred the latest rally attempt yesterday, though it looks better this morning with a 1% overnight move higher putting Gap Rules into play this morning.
As always, use the Gap fill/no-fill as your first sentiment barometer.
Resistance is at 4095 followed by 4115 (SPY 410). Support shows at 4015 (SPY 400).
There is no obvious catalyst for the overnight recovery. This setup feels a lot like that of late April, when the market (also net short) launched higher into VIX monthly expiration (tomorrow morning) and carried into a sizable April monthly expiration on the following Friday.
Back then, markets rallied on Tuesday and Wednesday, pinned on Thursday, and sharply reverted all their gains on expiration Friday.
Until proven otherwise, this move up should be seen as a short covering rally. It could extend into Friday, but it may be subject to quick and violent reversals. Subscribers will continue to receive signals to move their stops up with the rally.
Our swing model subscribers are in a buy signal at 4019.75. We will move our stop up to 4033.25 this morning just to ensure a profit. Consider a $99 monthly subscription as these subscribers are enjoying a phenomenal year – our initial $10,000 starting balance is now just below $50,000.
The main obstacle to a sustained rally is to conquer former support around 4100 – 4150 – now resistance. And we need to see real, institutional buying not merely short covering.
A reversal pattern on the 24-hour charts indicates a measured move as high as 4200. And though I don’t expect new highs, I believe that the market could recover up to 4300 before it stalls out again.

For now, the first target is the 21-day line or mean at 4150 or so.
Use this rally to cull your portfolio holdings – this bear is not over. You cannot go wrong if you are selective. Quality rules in these kinds of environments. Hard assets and real earnings are especially valued now.
As mentioned yesterday, the street is net short (also in short-dated options) expiring at monthly/weekly expiration on Friday, so Vanna flows should provide positive tailwinds this week.
All of this is part of bottoming the 80-day cycle – which is due to bottom between now and early June. If all goes according to plan, the next phase of the bear will start in late summer into the usual September/October seasonal weakness and 40-week cycle trough.
We get retail sales and industrial production numbers this morning which will give us some additional insight into the current quarter’s GDP. Existing home sales come out later this week.
We also have some of the big retailers reporting to wrap up 1st quarter earnings this week.
By Friday, we should have a good idea of how strong or weak the economy has become. Bad is good right now, as it takes the pressure off rate increases. 10-year rates seem contained at the 3% resistance level for now.
Geopolitics continues to be a wildcard – but do not forget that a rally catalyst would ensue if Russia does back off its aggression.
Let us see where this movie from the depths of market despair takes us. There is no lack of positive and negative opinions relating to the matter – that is for sure.

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Morning Notes – 5/16/2022

May 16, 2022 AF Thornton 0 Comment

Good Morning:

I will be delivering the “lite” version of my commentary this week, as I am losing my mother to the vaccine and will be indisposed while making funeral arrangements and attending memorial services.
Hauntingly, it was exactly a year ago (May 22nd) that I lost my father-in-law to the vaccine. The people and companies behind these vaccines are nothing short of evil.
People used to think I was nuts when I questioned the vaccines, now it is all coming out how bad they are and how the side effects were covered up.
My mother got the China virus twice after she had her vaccines. Now we learn that Fauci and the rest of the NIH crew were getting $350 million in secret royalties to promote them.
Last Thursday’s intraday low looks like a tradable pivot from oversold levels, crowned with a short-covering rally into Friday’s close.
We have a Navigator Swing buy signal on Friday’s close, but since it hung by a thread, I don’t want to issue the signal without follow-through today into the close. Otherwise, this is likely to be another brief short-covering rally that could be a bull trap.
Nothing else has materially changed, other than the fact that China’s economy appears to be collapsing under the weight of their lockdowns, and the collapse is sure to have an impact on the global economic outlook as well.
4000 is still the key pivot line until expiration on Friday. Resistance remains at 4100, with support at 3950, then 3921.
There should be some support from the options market into Friday’s monthly expiration, with 4000 acting as a pinning or mean-reversion level.
So the recent lows should hold, absent further “unknown” negative news.

A.F. Thornton

Founder's Trading Journal

Morning Notes – 5/13/2022

May 13, 2022 AF Thornton 0 Comment

Good Morning:

Some relief is in order this morning, as market makers appear to be drawing the S&P 500 back to the WEM low around 3985.
The bond market, leading the rout in stocks, bottomed Monday and started climbing out of its hole.
There could be a short squeeze into the close today before the weekend.
I might show up for that, but otherwise, with the open interest around the 4000 strike, I would expect the market to pin around that number today, which is why I rarely trade Friday expiration.
The real action promises to be when the monthly expiration arrives a week from today.
I have to believe that everything known is already priced into the stock market – and what is known is unpleasant for stocks.
What worries me is what is not known. For example, the CryptoCurrency class is having its meltdown – as I knew it ultimately would. What else is hiding under the rocks with all the global currency turbulence?
I will probably sit out today. A lot of the drawback to the WEM low has already manifested overnight.
Look for support at 3975, then 3920. Resistance is at 4000, then 4020.
The market is oversold, and a bounce is overdue. But it is a bear market nonetheless.
It would be best to use rallies to cull your holdings down to the bare minimum that you are willing to hold through further and deeper declines into the fall (no pun intended).
Make sure you are serious about holding, as you don’t want to change your mind and sell at the bottom.

Have a great weekend.

A.F. Thornton

Founder's Trading Journal

Morning Notes – 5/12/2022

May 12, 2022 AF Thornton 0 Comment

Good Morning:

I don’t mention it every day, but the Navigator Swing Strategy remains in cash with an extraordinary year-to-date return.
We are at that stage where a capitulation or waterfall low is likely to end this first bear phase, and I would prefer we enter either during or after that phase is complete.
There are respectable arguments on both sides of the market. Some believe that this market is ripe for a 1929 type of crash.
Even I could argue for a top to bottom 75% decline if the market were to tag its 100-year channel bottom.
Nevertheless, I will vote for the middle ground. It amazes me that I have not had to tweak our Market Thesis since I first published it in January.
The market has made the measured move for a “correction” at current levels. And perhaps the WEM at 3985 can draw prices back up before tomorrow’s weekly expiration.
Going lower beyond current levels (the market is at 3896 at this writing) would find support clusters around 3750 and 3500. I know those levels run deep, but they are what they are.
At 3500, we are still well above our ultimate target of 2500, where I would expect the bear to end.
But I am unaware of any “May” stock market crashes in history. They usually arrive in October. And given where we are and the literal washout in negative sentiment, I am still viewing this decline as phase one, with some relief due at any moment.
The street is mega-short, and I doubt the crowd will be correct. Lopsided positioning such as this is ordinarily unsustainable. Yet I still ponder what will rise from the depths of hell to more downside.
I suspect that a currency issue is in the offing. We have already discussed the crashing Japanese Yen, but this has also put pressure on the Chinese Yuan. Yesterday, even Hong Kong started tweaking its local currency.
Treasuries started to find some footing yesterday, and that may be the first indication that a short-term bottom is close at hand – unless it is a flight to safety. There is considerable chart resistance to the 10-year rising above 3.2%.
The good news is that I don’t care what has happened or even what will happen, as my focus is today and what is in my windshield. I know a bottom when I see it, and I will communicate it to subscribers in real-time.
And by the way, China is in deep, profound economic trouble between lockdowns and its imploding real estate market. They were in a financial crisis long before Russia invaded Ukraine.
Another sign that a low may be close is the market taking the generals out to the woodshed. Mighty Apple is the latest (and perhaps the last) to take the fall.
I am fortunate to have an extraordinary partner in this endeavor. Michael is nothing short of a software genius and problem solver.
We started this endeavor to manage our family funds. On Monday, we discussed how vital patience is in this and most endeavors. Right now, we need to be patient and wait for our moment, especially from an intermediate perspective.
We are day trading with subscribers, so there are benefits to the volatility if you know what you are doing. But taking a longer-term position is not advisable until that moment arrives when the crowd caves. We await that moment.
So let’s find a tradable bottom. This market is in capitulation territory.
I am looking for resistance today at 3900, then 4000. Support is at 3865. We are so deep into put territory that negative Gamma will start to decrease at 3800.
Gap Rules are applicable this morning. Use the fill/no-fill as your first clue to directional bias.

Stay tuned – we are here to help in any way we can.

A.F. Thornton

Founder's Trading Journal

Morning Notes – 5/11/2022

May 11, 2022 AF Thornton 0 Comment

Good Morning:

The top line and core inflation numbers came in at 8.3% and 6.2% for April, slightly higher than Wall Street’s consensus expectations.
The market tamped down a pre-market rally on the heels of the report.
So nothing has changed much from yesterday. Support is strong at 4000, and then the overnight low around 3950. Resistance is firm at 4100.
Of course, if the market spends much time below 4000, it becomes resistance.
We expect another 100 point range from the open today – meaning 50 points plus or minus the Open.
The WEM low around 3985 will be a magnet until the close (weekly expiration) tomorrow. But there is little (if any) support below 4000 from the options market and a spike or capitulation is possible if prices start to find acceptance below this important level.
Look to 3950 as the line in the sand. Otherwise, a short-covering rally remains a distinct possibility as the day gets underway.
I will have more to say later today, as I have a chance to take a deep dive into the inflation statistics.

A.F. Thornton

Founder's Trading Journal

Morning Notes – 5/10/2022

May 10, 2022 AF Thornton 0 Comment

Good Morning:

The centerpiece of one of Bill Clinton’s Presidential campaigns was the mantra, “it’s the economy, stupid.”
Now, the mantra should be, “it’s the liquidity, stupid.”
We are so easily distracted. Sure, the Fed is doing its thing, making the headlines. But the reality is that they have barely raised rates, and their balance sheet still grew in April.
But here is what is happening – liquidity is evaporating.
The impact on interest rates and nearly everything else is simple. If you want to sell, discount it. If you have to sell, watch out.
Let’s start with the Japanese Yen, previously a somewhat stable currency and haven. Remember the carry trade?

There is no doubt that there are bodies buried under that Yen slide. It is only a matter of time before the bodies float to the surface.
Moreover, Japan may be showing us our roadmap to U.S. sovereign debt perils, not to mention the results of putting an artificial cap on interest rates. Japan is in a doom loop. But for the grace of God, there go we.
And don’t forget that Japan is the single most significant buyer and holder of U.S. Government debt in the world. At least they “were.” Recently, Japan has been a net seller of U.S. Treasuries as their problems continue to mount. How does the story end?
And so, it is no wonder that the U.S. is experiencing spiraling interest rates. Fewer and fewer are buying what we are selling. Why would they?

Look, would you buy our debt? Our country looks like a debt-ridden disaster run by woke, senile octogenarians talking up nuclear war as if it were child’s play. “A Nuclear Strike Might Not Prompt the Reaction You Expect.”
Seriously? And the fact that our government will steal the money if a country doesn’t embrace the “Great Reset” agenda doesn’t help with the sales pitch.
When I was a kid, we took nuclear war so seriously that we used to have to hide under our desks in school as part of periodic atomic drills. I remember the air raid siren tests every Saturday at noon in Tucson, Arizona, where I grew up.
Of course, they also used to show us propaganda films of the former Soviet Union where all the houses and cars looked alike. Have you ever tried to find your rental car in a parking lot without the key fab?
But I digress – the real problem is that there are fewer and fewer buyers for U.S. debt at home and abroad. The banks are full and foreign buyers are few. Rates have to go up to attract the few buyers left at the table.
I shudder to think what U.S. pension funds look like right now with their failed 60/40 “balanced” portfolios. Unfunded pension liabilities are sure to surface as a problem sooner or later.
And without the “War” in Ukraine conveniently scaring the world and driving some funds to seek safety, would U.S. dollars and debt be attractive at all?
Do you see how that works? War is good! In every other Fourth Turning, war distracts everyone from the real problems at hand.
If you think about it, we are only a few nukes away from lower interest rates, depopulation, and the “New World Order.” The Great Reset crowd must be salivating.
I don’t want to go there, but when the U.S. Treasuries don’t sell, even with higher rates, Bernie Madoff, the Federal Reserve is the only buyer left. How does that work, exactly?
Never forget that rational humans value a return “of” their capital more than a return on it.
Back in the 90s, we used to talk about the “triple merit” bull market. The falling interest rates, oil prices, and the U.S. dollar worked together like a fine symphony driving higher equity prices.
So what do we call this bear? How about the “Triple Demerit Bear Market” – a rising dollar, oil prices, and interest rates.
The bottom line is this: if it isn’t liquid, you will have a hard time selling it. Remember the FAANG stocks? The ‘N” stood for Netflix.

And while I would like to believe that a 20% correction is enough in the S&P 500 Index, the evidence would suggest that the selling is just getting started. We have only begun to see retail mutual fund and ETF outflows in the past few weeks.
Sell when you can – not when you have to?
When I owned a bank and trust company back in the 1990s, I had the best stock market indicator in the world. The customers would buy at the top and sell at the bottom. It was an uncanny view into the real world of retail investing and the best market indicator I ever possessed.
And that brings us to this morning. Likely, today will manifest in a turnaround Tuesday. We are coming off the Weekly Expected Move low at 3985 on the S&P 500 Index. There is significant support at 4000, pessimism is reaching for the stars, and the street is extremely short. We are likely close to another rip-your-face-off short-covering rally.
If we are lucky enough to get it, use the opportunity to cull your holdings. We have a rough ride ahead of us.
If history is a guide, most bear markets retrace the final leg of the bull. In our case, it would be the entire stock market rally from the March 2020 lows. My ultimate target continues to be 2500 – close to the March 2020 lows and the price I peg to be the middle of the 100-year channel by the time we arrive there. Call it regression to the long-term mean. See the current BluPrint Thesis for a more detailed discussion.

This is the 100-Year chart of the Dow Jones Industrial Average showing the market's current location three standard deviations above the long-term mean (middle of the price channel). The market has achieved these levels only three times in history: 1929, 2000, and now. The prior two cases did not end well. The market fell from the channel top to the bottom in a 90% crash to resolve the 1929 overvaluation. From the top in 2000, the stock market dropped over 50% twice over a lost decade to resolve the overvaluation.

Our European friends mounted a rescue operation overnight. They tested new lows, but moved back into range. We are slated to open in the upper third of yesterday’s range.
At this writing, we may see a True Gap at the open. If so, Gap Rules will be in play. Remember that whether or not the gap fills is your first sentiment indicator today.
There is a lot of blue sky below 4000 on the S&P 500 Index. We would need parachutes to ride prices lower from there.
For now, I believe that the level will hold, and we should see some short-covering get underway as we approach the mid-week inflation reports.
Did you hear me? Take advantage of any rallies to cull your holdings. Don’t be the last one to turn the lights out.

A.F. Thornton

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Morning Notes – 5/9/2022

May 9, 2022 AF Thornton 0 Comment

Good Morning:

We come into this inflation reporting week on decidedly negative terms.
The tech wreck continues with the NASDAQ 100 and the S&P 500 both at new lows and opening down 2% and 1.5% respectively.
The S&P 500 has strong support at 4000, which has been my lower boundary call for a while.
The market could briefly overshoot the level, as the WEM takes us as low as 3985 this week. But I would be looking to work a bounce from there. Unless we are in an all-out crash, it does not make a lot of sense to short here.
We will have a True Gap down at this writing, so Gap Rules are on the table this morning. Focus especially on rules 2 and 4. But even if we open back inside the range, the key is to find acceptance there. Otherwise, the market will expand the lower range.
Overnight inventory is net short, so profit-taking should mark the open and boost prices. However, having come back up to the midpoint of the overnight range, the profit-taking may be well finished. If not, and as always, how the market handles the gap fill is your first sentiment indicator.
Be sure to mark the open, as it is a key component of working the Gap Rules.
Also be sure to review the BluQuant Oracle™ from yesterday for the weekly picture.
Your job is to make money – so focus on that today and leave the news off.
There is a significant chance for a tradable short-covering rally from here – so stay alert. It would more likely coincide with Wednesday’s consumer price data, but there are always insiders who already know the results.
Overnight traders may simply have run the stops under recent lows – just to bring it back up into range. Also note my comments in the weekly review about the 4100 level and its importance.
So I will peg support today at 4000, then 3985, with the overnight low at 4031 as the gateway to lower prices. Resistance is now at 4065, then 4100.
Recall that we are in extreme negative Gamma. And while that tips the bias to the bear side, gains as well as losses are exaggerated. So once you pick a direction, let it run. Obviously, as short-covering rally has the greatest potential.
A lot of folks are talking about a crash today. I don’t see it, and the market is too short to accommodate it without a significant catalyst.
That doesn’t mean you have to be the first in. Wait for a true, confirmed pivot.

A.F. Thornton

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