AF Thornton | Archimedes Methodologies

Morning Notes – 3/17/2022

Mar 17, 2022 AF Thornton 0 Comment

Good Morning:

As expected, someone was on the other side of those trades on the spikes in oil, wheat, nickel, etc.
As I said before, it takes about a week for the bodies to start floating up.
Actual commodities producers use options and futures to hedge or lock in prices. They are not traders per se, which is why commodities futures and options markets formed in the first place.
Say you shorted your wheat crop to lock in prices, and prices double and triple overnight. But you have not harvested your crop yet. Guess what? You get a margin call.
Trafigura (which trades hundreds of billion in commodities every year) – is facing “margin calls in the billions of dollars,” which means that the commodity “margin call doom loop” idea floated by repo guru Zoltan Pozsar is finally coming true.
The European Federation of Energy Traders (EFET), a trade body that counts BP, Shell, and commodity traders Vitol and the margin-call stricken Trafigura as members, said the industry needed “time-limited emergency liquidity support to ensure that wholesale gas and power markets continued to function.”
The EFET calls on governments and central banks to provide “emergency” assistance to avert a cash crunch as sharp price moves triggered by the Ukraine crisis strain commodity markets.
This week reminds me that the next few years will be a true nightmare. Big money will come on the short side of the market.
Bull markets condition you to avoid shorts, but they will pay handsomely over the next few years,
Of course, this assumes the other side can honor the trade (see above).
The Fed’s massive credit and liquidity creation, not traditional fundamentals, is behind current inflation.
I am sick and tired of the Biden regime acting like the rest of us are as stupid as their fans. Pocahontas takes the cake.
Is there something in the shot to help soften our judgment? It makes you wonder…
The truth is that the Fed is responsible for any central bank’s most significant money and credit creation. Well-intentioned? Maybe. But they waited too long to rein it in.
Yesterday, the Fed caught up with the market by raising 25 bps but did not announce the start of reducing its balance sheet. They instead said they would leave it for the meeting next month.
The Fed is likely stalling as proper action will cause a recession that would jeopardize the mid-term election results for the cabal later this year.
I am also worried that this regime will try coercive policies to stop prices from rising. Everyone will be blamed, such as “greedy business people” and “Putin,” but our state media won’t mention the real culprits.
I have already heard about “rent controls.” Count on them. Then gasoline price controls, and then price controls on food. President Nixon tried price controls in 1971. It was a disaster.

I am pegging resistance 4348 and 4400. Support should show at 4330 and 4300. Today’s trading plan and key level charts are available for Navigator Active Trader™ subscribers, accessible on the right sidebar menu “From Our Blog.”
We will be cashing in our Navigator Swing Trader™ SPY trade from yesterday. Subscribers should stay alert.
Remember that the WEM High on the futures is 4318 and will likely act as a magnet until expiration tomorrow.
I still believe that expiration will continue to support stocks into Friday. But I thought the same thing last month, and the market dipped into expiry (and the following Monday and Tuesday) anyway.
We may open with a small orthodox gap back into range on balanced overnight inventory. The Globex range is relatively small with symmetrical distribution indicating some balancing from the rally yesterday and the absence of stronger sellers at the moment.
How deep the pullback we are currently experiencing from yesterday’s highs will tell us about the future trajectory.
4300 is close to yesterday’s RTH session halfback, making it a bull/bear threshold today. Whatever pullback we get (if any) should hold above this midpoint to increase the odds that buyers remain in control.
There is no data yet that implies options-based support into next week.
If we see a pickup in call flows and push above 4400 in the S&P, my view will change.

Trade like a champion today,

A.F. Thornton

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Founder's Trading Journal

Afternoon Notes – 3/16/2022

Mar 16, 2022 AF Thornton 0 Comment

I have been reflecting on the death and funeral of Patriot Rich Higgins today. With a US Government resume nearly a mile long, this National Security Council staffer was the first to blow the lid off the deep state cabal working to unseat President Trump barely four months into office in 2017.
It is easy to see the thread running through all of these recent events – from the China Virus to the events in Ukraine. Reading the memo today makes a grown person want to cry over the purposeful destruction of our Country.
Having barely recovered from reading Rich’s memo, I ran across this March 10th report from Dr. Peter Pry, Executive Director of the Congressional EMP Task Force on National and Homeland Security. His assessment of our nuclear capabilities vis-a-vis Russia is sobering and blew a lot of my assumptions out of the water. Better to read this in the morning, not before you go to sleep.
As predicted, we had continued the impressive short-covering rally today, and the market closed above the 21-day and minor wedge downtrend line, breaking above the falling wedge pattern.
We closed above the WEM High at 4318, and there is a 70% chance that level will draw the market back down into Friday’s close.
The breadth was strong enough today that it nearly qualifies as a breadth thrust, so maybe this will be the outlier where the WEM High fails to hold this week, but I am not willing to bet against it.
I cannot recall a market holding up so well in the face of some of the worst sentiment I can remember since 9/11.
I am more impressed with the 2/24 low holding through this fear than with the short-covering rally. We discussed the importance of the 2/24 low back at the end of February and predicted the low would be secure, at least on an intermediate basis.

As you will observe above, the Navigator Algorithm rolled into a buy signal at 4256 for the Navigator Swing Traders™. The stops on the dashboard are set as the labels turn green.
The leveraged accounts bought an Emini and exited at the close. The cash accounts took a 75% SPY cash position.
The next stop is the Primary Downtrend line, and there will be complications as we roll into Quadruple Witching, an event we experience only four times a year.
The compression of volatility post the Fed’s quarter-point rate increase, coupled with expiration pressures, has manifested with a bullish outcome.
While the Federal Reserve gave a good report on an improving economy, they came off less supportive of equity markets today. As a result, the expiration and covering of a large swath of these put hedges may place the market back into an “underhedged” position after expiration.
If there was to be renewed demand for protection and a continued real-money selling post options expiration, we could experience a rapid flush lower, potentially.
Let’s enjoy the ride, but markets are fragile, so stay cautious.
Click the button below if you want to learn more about the Navigator Swing Trader strategy and subscriotion.

A.F. Thornton

Word of mouth is crucial for growing our trading community and providing education and support for your trading decisions. Please feel free to share this with your friends and family if you find the information beneficial.

Founder's Trading Journal

Morning Notes – 3/16/2022

Mar 16, 2022 AF Thornton 0 Comment

Good Morning:

I am updating these notes as the email link did not work correctly this morning, or at least I didn’t work it properly.
Last night, China announced some significant “all in” stimulus (like our Fed did during Covid), and it sparked a massive overnight Asian rally, with the Hang Seng Index up nearly 10% on a single session.
Then, a proposal for Ukraine to become a neutral country but retain its armed forces “could be viewed as a certain kind of compromise,” Kremlin spokesman Dmitry Peskov said Wednesday, hinting at possible progress in peace negotiations.
And with that Kremlin statement, Pop went the Weasel – as the S&P 500 staged a 50 point overnight rally into Fed day. The rally brought the market into our resistance band at the 4300ish zone.
The market is pegged in a 4315 to 4340 range, not atypical before the announcement on a Fed Day.
More importantly, the price is bumping into the WEM high around 4318 or so, also the top of the falling wedge minor downtrend line and the 21-day line.
That is a lot of resistance to conquer on a day where I am unsure what the Fed can do to please the markets.
We shall see, but there could be a lot of short-covering, or the market could await quadruple witching on Friday when nearly 1/3 of all outstanding options expire.
The expiring options also have a short-covering bias which could continue supporting the markets.
Trying to call out key levels on a day like today is likely pointless. But here it goes anyway.
The 4315-4340 area should continue acting as resistance until the Fed announcement.
Above 4315 is the call wall at 4400.
We peg downside support at 4220, with significant support at 4000 to 4050.
Be careful. I may miss the low, but I am not anxious to get involved at the WEM high, given the odds. No guts, no glory – but losses are never better than patience.
And if the market does turn higher here, we will all be amazed at the narrative shift, as usual. Is it the end of the world, or will everything come up roses?
The market opened with a sizeable True Gap putting Gap Rules into play.
There is potential for a trend change if the wedge trendline breaks, but the WEM high is a powerful draw into Friday’s close and expiration, even breached today.
The primary downtrend line is the next significant level to conquer if higher prices are in order from here.
I publish my key chart levels at 7 am for subscribers. They also get access to a twice-weekly Pro Trading Room, where I trade these levels live. Click the Navigator Active Trader™ button below to learn more.

A.F. Thornton

Word of mouth is crucial for growing our trading community and providing education and support for your trading decisions. Please feel free to share this with your friends and family if you find the information beneficial.

A.M. Charts, Targets, & Trading Plan

Key Daytime Frame Charts – 3/15/2022

Mar 15, 2022 AF Thornton 0 Comment

Introduction

Using today (Tuesday, 3/15/2022) as a reference point, I want to walk through my process for setting the key levels I communicate to the Navigator Active Traders™ members each morning. I also want you to know how they work.

To summarize, first, I look at the options market to determine what kind of volatility is at hand for the week ahead, so I have a reasonable expectation of trending versus reversionary behavior.

On Friday evenings after the market closes, I set the expected move (WEM) range to establish my trading “sandbox” for the week ahead. Setting the probable zone allows me to prioritize the various support, resistance, and turning points price will encounter in the sandbox.

I set the expected move for the day (DEM) as a daily sandbox inside the weekly sandbox each weekday morning. The projected daily range allows me to further refine the support, resistance, and turning points in my windshield for that day.

I look for clusters of support and resistance where I might initiate trades or target profits. I divide the sandboxes into quartiles for the day and week to help me correctly position trades depending on the bull, bear, or balancing context.

I monitor internals and follow-through, using market and volume profiles (a separate discussion) to help determine if the market is likely to trend higher, lower, or sideways.

In short, I consistently apply a well-defined process that facilitates my day and swing trading success. Many of the variables discussed are also weighted components of our proprietary Navigator Algorithms™.

I publish the key levels at 7 am for the Navigator Active Trader™ subscribers. Subscribers also get access to attend our twice-weekly Pro Trading Room, where you can watch me prioritize and trade these levels.

You can click the button at the end of this discussion to learn more about a Navigator Active Trader™ subscription.

Weekly Trading Sandbox

Calculating the Weekly Expected Move is the first step in your trading plan for the week ahead. The move defines the macro sandbox for daytime frame trading during the week. It is your Sunday project.

The Weekly Expected Move gives you invaluable information about the overbought or oversold nature of the index in initiating trades and taking profits throughout the week. The market will stay within the boundaries 70% of the time.

I like to divide the weekly range into quartiles and generally look to initiate my long day trades when the index is in the first WEM quartile (shaded green) and target profits in the last quartile (colored red). Shorts are just the reverse.

It is also acceptable to divide the range into thirds. Whatever works for you is OK, as long as you understand the concept.

Of course, whether to focus on longs or shorts depends on context. Taking trades between the shaded boxes depends on the circumstances as well. But the closer you get to the middle when initiating a trade, the more likely you might be starting transactions in no man’s land.

Naturally, you can manage a trade initiated in the red or green zone through the middle. It depends on your target, and you can always trail a stop.

Knowing the range also helps you identify other key levels you may encounter as they travel inside the sandbox during the week. You can focus on the most likely moving averages, support, resistance levels, etc., where your trade might stall or change direction.

For the most part, you can ignore potential happenings outside the top of the red shaded boundary and the bottom of the green shaded edge, which are the maximum endpoints of the expected move.

The Weekly Expected Move sets the edges where Dealers and Market Makers begin to lose money if the price moves outside the range and stays there when weekly options expire at Friday’s close. Dealers and Market Makers will vigorously defend the boundaries or lose billions of dollars on a breakout.

Sometimes the price will exceed the boundaries intra-week. Such breakouts are acceptable to a point. But it is best to nail your profits at the boundaries. You will often be surprised to see the price return inside the range by Friday’s close. The possibility may create a trade set-up in and of itself.

But be aware that if the price exceeds either boundary significantly, Dealers and Market Makers may aggressively hedge their portfolio deltas by selling futures into the same direction of the move, potentially making the advance or decline worse.

Next, we set the daily expected move ranges for the trading day ahead.

Daily Trading Sandbox

Calculating the Daily Expected Moves is the second step in your daily planning. The boundaries define the sandbox for daytime frame trading just like the Weekly Expected Move does for the week ahead.

Combining the Daily and Weekly Expected Moves gives you invaluable information in taking your trades throughout the week.

Just like the week, I like to divide the daily range into quartiles and take longs in the first quartile (shaded green) and target profits in the last quartile (shaded red). Shorts are just the reverse.

But these decisions are also influenced by the index’s location inside the Weekly Expected Move range. Depending on the context, overlapping weekly and daily green and red zones deserve your attention.

For the daily chart, there are three expected move data points. The first data point is the expected high and low calculated from the RTH session Open. This calculation is beneficial when there is a large opening gap. Our estimate also incorporates options gamma, a valuable filter.

The second and third expected moves are data points calculated from the previous day’s close. Historically, the first data points from the close contain roughly 70% of the daily price action. The second levels frame about 90%.

Since there are multiple-choice data points in the daytime frame, choosing your anchors for the quartiles is a bit of an art. Is the market balanced or trending? Are the internals solid or weak? Did the market gap open? Should you be focusing on longs or shorts, or both? Pick the broader or narrower expected move range accordingly.

It is also helpful to identify other vital levels you will encounter in the daily sandbox. Suppose there are moving averages, additional support and resistance levels, etc… In those cases, you will better understand where to initiate new trades, set targets, and identify where the market may stall or reverse.

Now, let’s identify and add any key trendlines to our sandbox.

Today's Key Trendlines

Overnight and morning traders ran stops under the Primary Uptrend Line from the March 2020 China Virus Crash low and under the 2/8 low. Then they brought the market back up into yesterday’s range. The market’s rejection of lower prices and return inside yesterday’s range was impressive.

The price action reminds me that the market is holding its ground despite the constant stream of bad news since the 2/22 Ukraine Invasion low. As discussed in the 3/6 Navigator Oracle, the low remains secure. The market also conquered and retested a minor downtrend line on today’s strong advance.

All in all, today’s market action was bullish – even if it mainly was short-covering. But the market is still sandwiched between its Primary Uptrend and Downtrend Lines.

The pattern looks more like a bear flag to go down on the NASDAQ 100 and a falling wedge to rally on the S&P 500. But even on the S&P 500, the wedge may need lower prices to complete.

The Fed meeting reaction tomorrow will help the market resolve its consolidation. Quadruple witching expiration Friday would appear to provide some supportive gamma, but I thought that last month as well, and the market dipped into expiration anyway.

With sentiment at record low levels and a lot of cash on the sidelines, it would not take much to trigger short-covering. But there is unlikely to be an all-clear signal until next week.

Seasonally, the stock market tends to turn higher in mid-March. If the 2/24 low is the 20-week cycle trough, a relief rally is the most likely outcome as we get through the Fed announcement and options/futures expiration.

Let’s move on to the simplicity of the two support and two resistance levels I communicated this morning when the charts and colors briefly turned me into a mad scientist.

Today's Pre-Announced Key Support and Resistance

Today’s story was the market heading north after two bear days in a row, The market stalled at the first pre-announced resistance (1) for an hour. The level coincided with the minor downtrend line on the trendline chart above.

After clearing the trendline, the market returned to retest the break above (2). Then the market rallied up to our second pre-announced resistance level, where the market stalled again into the close.

As we move down the chart list, you will see additional support and resistance constructs in the same neighborhood. The levels work whether you use them as targets for trade initiation or profits.

Now let’s look at some calendar-based levels.

Today's Relevant Calendar Based Levels

It is important to track certain calendar levels as they often act as support and resistance as the trading day begins and when you encounter the weekly and monthly levels in your sandbox.

I always mark the current monthly and weekly open because that is where the respective candles turn green or red (“screens go green”), as it is often said. I will also have the high and low for the previous month and week on my screens, as those can be important inflection points.

Remember that every bar or candle sets up a trading and breakout range, whether the bar is one minute or one month. It is impractical to trade a one-minute bar as such, but weekly and monthly candles are typically large enough to be monitored as a range. A sustained break above the candle is bullish and vice versa.

I also want the previous day’s high and low and the Globex high and low marked. Each day, the opening drives will often start by testing the overnight high and low and the previous day’s high and low to find the path of least resistance.

Today, the market opened at the overnight high and kept going. It finally reached yesterday’s high at the close. Yesterday’s candle was somewhat large, so it took a long trip up to test the top. Ultimately, the price closed above yesterday’s RTH high, another bullish sign.

If the previous day is a trend day with a large candle and extensive range, it is also helpful to mark the 50% point on the candle, also called the “halfback.” In such cases, the halfback can provide support or resistance and can be a target for taking profits on your trade.

Now, let’s take a look at the options market’s influence on today’s price action.

Today's Influential Option Levels

The influence of options on the stock market has never been more significant. We track the highest impact levels and observe the index when it encounters them.

Every option generally has a dealer/market maker on the other side of the trade. With data from the exchanges and a few inferences, we can predict how these professionals will hedge their positions and where.

Sometimes I feel as if the options information we convey is as close as we can get to legal, insider trading. Simply put, the various levels, regardless of the nomenclature, act as support and resistance. When there are clusters of lines, the area will likely be strong support and resistance.

For example, see the group of levels on the chart above around 4200, with the next collection above at 4300. These option levels have been primarily responsible for the market’s current rangebound conditions. You can see the influence today.

We also track the price where gamma and delta shift from negative to positive and vice versa. And there is another important level we monitor called the “volatility trigger.”

The market and price ranges behave very differently above and below these points. This helps me calculate the implied moves for the day and week. I can also anticipate intraday range expansion or contraction.

Today, the fact that the price traveled back up and through the gamma cluster at 4200 let us know that dealers and market makers are still willing to vigorously defend that price, which is also the Weekly Expected Move low. Coincidence? Not likely.

The market first stalled when it encountered the 4th largest combined gamma level of the S&P 500 Cash Index (SPX) and the Index ETF (SPY) around 4250.

Now let’s see if we can put all these together to give us a relevant framework traded today.

Completed Sandbox for 3/15/2022

Now, we can put it all together using a one-minute candle chart to magnify the granularity and separate some of the clusters. I’m not too fond of a busy chart. So in my setup, I can lay on the levels one at a time.

Also, don’t be afraid to rough out a level representing a cluster or shade a wider rectangle to define the area on your chart. Keep your charts as uncluttered and straightforward as possible. I crafted my process to put everything in front of me long before the open precisely to prioritize.

The first issue that stands out today is that you could have used the two support and two resistance levels I communicated to you in the Morning Notes. That is often the case.

With Internals strong, you could have bought any dip on a pivot (confirmed when my candles flip from orange to blue. You would be wise to skip the typical Chicago and New York lunch consolidation periods and catch the afternoon drive.

You could have used the Algo Trigger for confirmation in the five or 15-minute time frames, and the Internals guided that price action favored longs over shorts.

I did not trade today because I am busy creating templates to deliver these charts every morning timely. They take so long to hand draw that I automate the lines and levels.

There are more issues to cover in day trading, but the information covered here is what matters as far as key levels.

Today's Conclusions

To summarize then, you start with the weekly range and focus on the material support and resistance levels you might encounter. Step out and look at the big picture.

Then each morning, you hone that down to what is in your windshield for the day. You look for clusters of support and resistance both as levels to initiate trades and then target for profits.

You monitor internals and follow-through, using market and volume profiles (a separate discussion) to help determine if the market is likely to trend higher, lower, or sideways.

You need a consistently applied process to be successful day trading or even swing trading. All of the variables discussed above outline my approach and are also components of the Navigator Algorithms™.

I publish my levels at 7 am for subscribers to the new Active Trader Subscription. Subscribers also get access to our Pro Trading Room, where you can watch me use and trade these levels and learn twice a week.

Click the button below to learn more.

A.F. Thornton

Word of mouth is crucial for growing our trading community and providing education and support for our trading decisions. Please feel free to share this with your friends and family if you find the information beneficial.

Founder's Trading Journal

Morning Notes – 3/15/2021

Mar 15, 2022 AF Thornton 0 Comment

February Producer Prices +10%

Good Morning:

I harken back to law school finals, which is the last time I recall pulling all-nighters. I now remember that I felt worse the second day than the first. I must avoid these in the future; I am getting too old and feel like I am experiencing a college hangover.
As such, I will tackle charts later this morning, though nothing has changed much.
The headlines have been writing themselves again lately: “When we’re having this discussion, it’s important to dispel some of those who say, well, it’s the government spending. No, it isn’t. The government spending is doing the exact reverse, reducing the national debt. It is not inflationary.” Nancy Pelosi
Hey Nancy, Producer Prices rose 10% last month, you are not spending enough! Politicians and financial advisers are the only categories showing significant demand waning and lower prices.
The NASDAQ 100 took out its February low yesterday, but the S&P 500 holds just above. From a NASDAQ perspective, it looks like a bear flag to go lower, but the S&P 500 is hanging on to a falling wedge look. Even within the wedge, there could be lower prices.
There is no shift in the outlook. The sentiment is poised – maybe even screaming – for a rally. Fed announcements come tomorrow. Options and Futures expire Friday (Quadruple Witching), with almost one-third of outstanding options expiring.
And don’t forget about short-covering rallies. If it were not for those, this would be no fun at all.
Significant support today will be at 4151 and 4126. Resistance is at 4201 and 4250. For now, that is your chart for today.
Hedge Funds have been taking profits on commodity spikes, with oil poking back down below $100 last night. Buy the dip?
We would open with a small gap higher into yesterday’s range at this writing. It would not be a True Gap, so Gap Rules are not applicable.
The NASDAQ 100 continued to explore new lows in overnight trade before returning into yesterday’s range. The NASDAQ behavior is classic h pattern price action, which allows for a bullish outcome.
The overnight rejection of lower prices and other technicals show potential for short covering in today’s session.
The S&P 500 continued to hold above the 2/24 low, but it looks like traders ran the stops under the 3/8 low before bringing the index back into yesterday’s range.
Markets added some more macro concerns yesterday, with Coronavirus headlines re-appearing and China imploding economically.
4000 continues to be the monster strike level, guarding the gates of market hell.

A.F. Thornton

Founder's Trading Journal

Navigator Oracle™ – Interim Update

Mar 14, 2022 AF Thornton 0 Comment

And so it begins...

Barclays has announced the suspension, until further notice, of any additional sales from inventory and any additional issuances of iPath Pure Beta Crude Oil ETN (ticker OIL) and iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX)

According to a press release, the suspension is because “Barclays does not currently have sufficient issuance capacity to support further sales from inventory and any further issuances of the ETNs”

ETNs are exchange-traded senior debt notes usually linked to a benchmark index. They are similar to ETFs, except they hold debt rather than equities.

The major indices, including the S&P 500 index, were already in freefall but accelerated lower after the headlines hit.

The market is breaking the Covid Crash trendline at the moment, but it could be a stop run. We are at the Expected Move Low for the day and below our second major support level.

There might be a long trade on a pivot higher, but it feels like we would be fighting the algos. Market internals are 3:1 negative on both the NYSE and NASDAQ.

The day started on a positive note but failed on a test of the 5-day line. So let’s watch the wedge formation and go from there.

A.F. Thornton

Founder's Trading Journal

Navigator Oracle ™ – 3/13/2022

Mar 14, 2022 AF Thornton 0 Comment

Interim Issue Number 0975 - 03/13/2022

The Navigator Oracle™ is BluPrint Quantitative Strategies’ signature publication. The weekly forecast is available Monday mornings free and can be sent directly to your email if you register. Subscribers receive the Oracle on Sunday morning, along with essential updates during the week and live access to swing trading signals initiated by the BluPrint Founders Group.

Do You Embrace Change?

We had some technical issues tonight, and I have been awake until 2:30 am trying to fix the problems. I usually get up at 3:00 am – so the forecast will come out this afternoon and I won’t be publishing key levels this morning.

The key to the week ahead is to get through the Fed meeting and rate increase announcement on Wednesday, then monthly options expiration on Friday. I do not anticipate taking any significant positions before these events unless the price action dictates otherwise.

As we wade through these events with seriously negative investor sentiment, we are looking for a swing low to grip near the recent 2/24 and 3/8 lows, if not a temporary spike low below them to run all the stops.

Note the falling wedge pattern outlined in the chart above. The pattern can also help guide us through the next few sessions.

Even with a relief rally, this baby bear has the potential to grow into a mama bear before this unfortunate era is behind us.

At the moment, there is strong support at 4200 and strong resistance between 4300 and 4400, at least until monthly options expire around those strikes on Friday.

Please make no mistake; we are in a severe and unfolding crisis as the world divides between the fiat currency (worthless money) powers and commodity-rich countries such as Russia and China.

I believe that the U.S. dollar is finished as the reserve currency, as is our global leadership position. We are being challenged in every corridor because we have a fat, weak, and feckless government, and plenty of blame precedes Sleepy Joe.

Our “cancel culture’ politicians made a severe error in weaponizing the dollar and our Federal Reserve against Russia. No legitimate government will trust us any longer with their reserves, and they will flee our sphere of influence just as fast as conservatives are fleeing Twitter.

Nothing the Fed can do will stop the inflation unleashed in this crisis. We are shifting from a Western-dominated or financialized monetary world to an eastern-dominated or commoditized one.

When you see those unbelievable price spikes on oil, wheat, nickel, etc., don’t forget that some firm is on the wrong side of every one of those trades. Hedge funds and banks are losing billions and are sinking. It takes about a week for bodies to float to the surface.

Inflation is written all over this for us. This crisis is not like anything we have seen since President Nixon took the U.S. dollar off gold in 1971, ending the last era of commodity-based money.

Fiat currencies and the global powers that embrace them always end on the trash heap of history. We are now witnessing our potential demise in real-time.

Washington takes this so seriously they purposefully passed another $3.5 trillion in deficit spending in the middle of the night. It gets the government through another six months. Recall that we were all either asleep or distracted by the war when they passed the bill.

The majority of our political leadership class is corrupt, skimming off the top for themselves and their families. They will be our undoing,

Oh, did I forget to say Good Morning?

A.F. Thornton

Founder's Trading Journal

Afternoon Notes – 3/11/2022

Mar 11, 2022 AF Thornton 0 Comment

Good Afternoon:

Day 16, where is Fauci? No, really, where is he?
The “public health” house of Covid-19 cards has collapsed at freefall speed in the last month or so.
Every single public health official responsible for (often permanently) damaging our mental and physical well-being with experimental mRNA gene therapy mandates, cruel forced masking, social isolation, and propaganda — down to the county level — deserves the full weight of the legal system pressed on their necks. What they did to children and the elderly is beyond reprehensible.
Biden’s Lie of the Day: “Make No Mistake, Inflation is Largely the Fault of Putin.” Of course, they all lie in both parties. But Biden’s latest lie is a whopper, and he isn’t fooling anyone. He forgets that real people put gas in their cars every week. They don’t need a government bean counter to tell them what is happening and when.
The true source of the current inflation is the cumulative increase in the money supply measured by M2 since February 2020—an incredible 41.2%. In January, the growth rate of M2, even after three months of tapering bond purchases by the Fed, was still 12.6% over its level a year earlier. That’s about double the rate it needs to be to hit the Fed’s 2% inflation target.
Inflation is out of control and will be with us, best guess, until the dollar is gone as the world’s singular reserve currency or the Fed destroys the economy and the stock market with massive interest rate hikes. Inflation will punish the stock market, the real estate market, and the economy at large.
But have our illustrious overlords learned anything? I will give you $1.5 trillion reasons that haven’t.
It was a clever move at a perfect time. With Ukraine raging and people traumatized over the war, leadership like Speaker Nancy Pelosi (D., Cal.) kept bringing questions back to $14 billion in aid for Ukraine. Members stressed that there was no time to waste — or in this case to read — before voting.
And then they voted, $1.5 trillion in deficit spending passed in the middle of the night. Few even read the 3,000 plus page bill. Leadership on both sides held back the bill until the last minute so that nobody had time to read it.
Our range trade continued intact today. The S&P 500 traveled back down to close at the 4200 put floor, and Weekly Expected Move Low. The 4200 level has been a solid support level with $3.8B Gamma (combining the SPY and SPX) and the largest of any strike.
At the top of the range, $3.0B in Gamma at 4300 is solid overhead resistance over the past week (although pushing a touch through it on the Putin Pop headline this morning).
Let’s cover the rest in the weekly outlook on Sunday.

A.F. Thornton

Founder's Trading Journal

Morning Notes – 3/11/2022 – Expected Moves

Mar 11, 2022 AF Thornton 0 Comment

Just a couple of quick comments this morning:

The market backed way down from the price level at my morning notes.
The index rejected the top downtrend line of the falling wedge on the daily chart, even with the Putin Pop, which retraced.
The wedge top tracks the falling 21-day line, so the line is also being rejected.
I placed the quartile colors on the most likely expected move range for the day.
So I see no significant change – the market remains pinned between 4200 and 4300 for now, the fluid range we have discussed the past few days.
The index is wedging again and likely will turn higher again soon if you want to catch a quick intraday trade. Wait for an actual pivot.
I still see a slight positive bias based on expiration and strike prices into the close.

A.F. Thornton

Founder's Trading Journal

Morning Notes – 3/11/2022

Mar 11, 2022 AF Thornton 0 Comment

Good Morning:

I usually arise at about 2:30 am PST. So as I was executing my morning routine, I saw the Putin Pop hit the market at about 3:20 am PST. Initially, the S&P 500 jumped 70 points, right into our resistance wall between 4300 and 4320.
Apparently, Putin reported some positive progress in the talks with Ukraine. He is a master of deception, so it is hard to gauge the truth.
For all I know, his finance minister came to him and said, “Hey Vlad, do you feel like running a short-squeeze over in New York today?”
And that reminded me of what I have been telling you all week. It is too late to initiate shorts here without copiously managing the trade. There are too many outstanding shorts at the moment, and the indicators show that rally risk considerably exceeds decline risk.
With all the fear and negative news, you have to be betting on a nuclear event to cash in on shorts initiated from current levels. As I said a few days ago, if that is what you believe, you need to make sure you will still be around to collect.
There will be more chances to bet on lower prices ahead. Let’s wait for some higher prices.
My quant calculations can go out the window in a news-driven market like this morning, but I will give it a go on some ranges.
My best judgment, and it is somewhat speculative, is that we will open at the 4300-4320 resistance area and pin in a tight trading range. As you can see from the chart below, 4300 stands out as an obstacle to higher prices at least through weekly expiration today.

On the very optimistic side, I can calculate a gamma-adjusted volatility range of about 63 points up or down from the Open. If we open around 4300, that ranges between 4363 and 4237. But that is very optimistic.
With the top of the Weekly, Expected Move up at 4453 – there is headroom for more gains today, but it would counter the falling wedge downtrend line on the daily chart, which might still be our best range guide at the moment.
Last night (which is the most accurate picture), the options market was pricing a 52 point move from yesterday’s close at 4257.25. That would give us a range between 4205 and 4310.
So a lot depends on where the market opens. But there is considerable resistance at 4300 and 4320. The market is likely to pin there for the rest of the day.

I will mark the options pricing range from yesterday’s close on the quartile shading. Remember that we will open at the top of the range I would have projected without the Putin Pop.
The idea is that you want to take longs in the first quartile of the projected range, which is light green. Traders should take shorts in the top quartile or light red end of the spectrum.
In this kind of volatility, it is best to avoid taking positions in the middle of the range.
I will update the weekly outlook over the weekend.
Next week is the big Fed meeting.
The market is ready to rally, and it could start before the meeting, but I still believe that monthly expiration a week from today has the potential to hold the market back.
Lately, the rally starts on the Tuesday after expiration. We will have a better idea as we approach monthly expiration next Friday.
I would view most rallies at this stage to be “short-covering.” They will be subject to fast reversals.
Clarity on monetary policy and geopolitics will drive sustainable gains, but I suspect the significant positions expiring next week are Fed hedges.
I will adjust all levels and repost once I have the Opening price.
While a lot of the Putin Pop has retraced, the market will open with a True Gap, so Gap Rules apply this morning.
If the gap fills easily, it would be bearish, and sellers are likely to return on acceptance within range. If the gap is not filled at all or only filled partially, that can be a long signal for further short covering.

Have a great weekend.

A.F. Thornton

All posts by AF Thornton

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