All posts by AF Thornton

Founder's Trading Journal

View from the Top Down – 8/23/2021

AF Thornton 0 Comment

I had a Dream...

Well, it was more like a nightmare. But I need to set the stage first.

I was watching George Noory’s Beyond Belief program on the Gaia channel Friday night. It was Season 17, Episode 7, on “Dispatching Your Spirit Guides.” Mr. Noory’s guest talked about Spirit Guides, Guardian Angels, etc., and how they help us. 

Don’t get me wrong. Some of the subject matter is a little out there. Nevertheless, if I have a spirit guide or guardian angel, I don’t mind a little help once in a while. Who doesn’t?

So, as I went to bed that night, I whispered to the netherworld that I would be receptive to receiving a lifeline every once in a while. Sure enough, I went on to have a very vivid dream that the stock market crashed. Was it an omen?

But the dream eventually turned into a nightmare. There are always those tricky dreams where you are about to fall, or something bad will happen. You wake up relieved, realizing that you were only dreaming. Not this time.

In my dream, I knew the market crashed, and it wasn’t good. But in the dream, I was not allowed to know whether we were in the market or out in cash. That was the nightmare. I had to sit in a chair outside a room and wait to go into a meeting to find out. 

But when I woke up, I finally remembered we were in cash. I was relieved. But then I realized it was a dream, the fact I was in cash was the real world, and the market was ready to go up again. FOMO (Fear of Missing Out) immediately set in. So I will continue to wonder whether the dream was an omen. 

For now, bad news is good news for the markets. Both the sad situation in Afghanistan and the Delta variant have quelled fears of the Fed taking the punch bowl away in their (now virtual) Jackson Hole meeting this week. So the market marches on, but with extremely weak internals and plenty of other warning signs. The party won’t last forever. 

For now, I am content to day trade. The Navigator Algo issued another high trigger buy signal mid-day today. But I am choosing to ignore it for now. It is tough to swing trade this market, especially with options. 

Also, the U.S. Dollar has been breaking out of its downtrend lately, possibly forming a new uptrend from a “W” reversal and bottom. That is not usually good for the stock market in the short term. It might reflect a flight to safety. 

There still is not much clarity on interest rates. They could go either way. On the weekly chart, I see a large pattern for rates to reverse higher. They broke above the mean and a very short-term downtrend on the daily chart, also pointing higher. But the intermediate trend in rates remains down unless the 10-year rate can move above 1.37%. As a side note, higher rates will help the dollar – so the two should move in tandem.

So cash is fine for now. The Russell 2000 and Energy both led the performance corner today. A few weeks back, we were stopped out of our first foray into the XLF (Financials) but hit pay dirt on the next try. So I will keep an open mind on the XLE (Energy) if a second look makes sense. I am more open to sectors that have been corrected or based for a while. But I am happy in cash for now from a swing trading perspective.

Anyway, I need to get back to Beyond Belief, Season 17, Episode 1, “Chakras and Money Flow.” When it comes to our money, I leave no stone unturned.

Stay tuned,

A.F. Thornton

Founder's Trading Journal

Pre-Market Outlook 8/23/2021

AF Thornton 0 Comment

I will put out the View from the Top Down later this week. Suffice it to say that the 40-day cycle dip was completed intraday on Thursday. The NASDAQ 100 and S&P 500 indexes have since risen swiftly and both are within striking distances of new highs this morning. Other than that, nothing is new.

Many warning signs of an intermediate top continue to manifest. But the market is not quite ready to topple. When it does, the initial downdraft will be swift and it may be well underway before the New York Stock Exchange opens. That is among my biggest concerns at the moment.

We will hear from the Fed after the Jackson Hole conference later this week. That could rock the markets, yet I still don’t anticipate that the Fed will taper with the current circumstances in Afghanistan and spreading Delta variant.

Fear continues to be very high as measured by many sentiment indices. Typically, the market does not correct when fear is this high. Of course, there may be exceptions but the market is climbing the wall of worry at the moment.

Another issue weighing on me is that the FAANGMAN+T stocks may be acting like defensive stocks. Let’s face it, their earnings have been rock solid and only seem to benefit from the exigent circumstances of the last 18-months. 

So maybe Microsoft, Google and the like have morphed into the same category as Utilities. They are safe havens. That could explain the narrow breadth still carrying the market – especially given the index weighting of the tech monsters/

We have a gap higher this morning on top of Friday’s bullish activity. Gap rules apply.

The market has crossed back above the mean on the daily chart, a bullish sign

If stronger sellers are going to emerge to turn these charts south, then they need to do it soon. The odds of a reversal back to recent swing lows are diminishing with every uptick.

As always, how much of the gap fills (if at all) is extremely valuable information to carry forward. It will tell you what type of day is likely to unfold.

Note that the ONL (4434.25) is right at settlement with only a few ticks of variance. Assume that low is weak and could be a short point if tested.

The market should favor longs above the ONH (4455) with an ultimate target of the ATH (4476.50), although there is some distance to travel and traders should monitor closely for confirmation.

A.F. Thornton

Founder's Trading Journal

Pre-Market Outlook 8/20/2021

AF Thornton 0 Comment

If we are on the monthly options expiration script, we should hit the low today or Monday and turn back higher and back into the clouds. If the script is changing, then there are other possibilities. We won’t know that for a few days.

The overnight range is inside yesterday’s range, so we will use the overnight high at 4406.50 and the overnight low at 4371.75 as our boundaries today. Holding the 4400 level matters, as we know 4408 is the monthly open and the key to a bull or bear bar for the month. Taking out the top of the spike at 4418.25 would rev up the bull as well. 

If we end up with a bear bar for August, it is likely than one or two more will follow in September and October. That tends to be how it works. 

Then 4389 or so is the halfway point both for yesterday and the overnight range. That could be a bias threshold to work with today. 

Since there is nothing to guide us at the open with an inside global range, let the market settle in a bit before trading.

The macro trend is still positive. This should be a 40-day cycle correction and nothing more. This was predictable as outlined last Sunday. Only time will tell.

Watch the swing low from the 18th at 4347.75. Any action below that and the bears will come out of hiding.

I am out this morning, and don’t typically trade expiration, so the next update will come over the weekend.

Good luck today.

A.F. Thornton 

Founder's Trading Journal

Mid-Day Outlook

AF Thornton 0 Comment

We just finished three hours of short-covering. The market managed to tuck up into the monthly open around 4408, near the 21-day line and slightly above yesterday’s RTH low. Unsurprisingly, this is now resistance and will take some time to conquer if we are headed back north again.

The remainder of the day will tell us whether the market can find acceptance or needs to roll back down and retest the lows. The “ABC” nature of the short-covering rally makes it look corrective to the downtrend underway rather than the first rally in a new leg up.

Let’s see how the rest of the day goes. If you followed the Pre-Market Outlook, you should have more than enough gains to take the rest of the day off.

A.F. Thornton

Founder's Trading Journal

Pre-Market Outlook – 8/19/2021

AF Thornton 0 Comment

Programming issues have been plaguing me since Sunday. I will get everything from yesterday back up on the website later today. Meanwhile, we exited most of our positions last week at the peak, excepting for Energy (XLE). I had set a wider than usual stop to give it plenty of room. One would think XLE would have reacted favorably to Middle East turmoil. We hit our stop about an hour before the close yesterday nonetheless. And perhaps that is one of our “WWSHD” signals (when what should happen doesn’t).

Overnight, the major indices continued lower to tag their 50-day lines. That would have been the end of it in the past few markdowns. However, in June and July, the markdowns did not finish until Monday or Tuesday after monthly options expiration. The monthly expiration is tomorrow (Friday). And we will be gapping lower this morning from the lower third of the overnight range. Overnight inventory is net short.

And the previous corrections started a few days later than this one. Of course, this markdown could be different now that we are in that seasonally weak period of the markets – August through October. Notably, as well, we have now dropped below the August monthly open at 4408, so the monthly candle has turned red, putting a potential bear monthly candle on the board.

Also, we have been in a small pullback bull channel on the weekly chart which normally ends with a large pullback of 10% to 15%. At the very least, the market typically will go sideways for a while. The only question is what the size of the trading range would be. As an example, could we tag the July 19th low around 4200 to form the bottom of the range?

Today, then, is as simple as framing our bias between the overnight low at 4347.45 (the market looked like it was exhausting into that level last night) and the overnight halfback at 4374.50. Above the halfback, I start feeling a tinge of positive bias. Below the overnight low, there are a couple of prominent VPOCS at 4339.75 and 4316.50, but it could also mean a trip all the way down to the 200-day lines, though not likely in one session.

Overnight inventory is certainly net short enough and we are close enough to the ONL to assume that there is potential for a short-covering rally. As always, buy the high of the first one-minute bar or a cross back up through the open should the opening drive be lower.

In either situation, it would be better if the ONL does not get taken out in early trade. Monitor for continuation and target the overnight halfback first. The outcome and tone of any short-covering rally will always give you tons of information that will help you discern the potential outcomes for the rest of the session.

On any fade and then failure, preferably one that cannot even reach the overnight halfback, the cross back down through the opening price is a short trigger.

On an opening drive lower that takes out the ONL, target the first VPOC at 4339.75 and monitor for continuation. Good confirmation that such a move has the legs would be a failure of the NYSE tick to get positive at all during the first half-hour of trade.

Both Gap Rules and Spike Rules apply this morning.

A.F. Thornton

Navigator™ Signals for Day Traders

Mid-Day Update – 8/17/2021

AF Thornton 0 Comment

As I had suspected, yesterday was somewhat of an anomaly, making me highly suspicious that the Fed intervened in the market to cushion the Afghanistan news.

So it appears that the 40-day cycle markdown has resumed. But with the CBOE Put/Call ratio at the highest level we have seen all year, I do expect a short-covering rally at some point today, perhaps even into the close.

I would target the 21-day EMA on the daily chart as the first reference point and target for the cycle low. From there, you can double the decline if the 21 does not hold and then target the 50-day line.

A.F. Thornton

Founder's Trading Journal

Pre-Market Outlook – 8/17/2021

AF Thornton 0 Comment

There was no follow-through overnight to yesterday’s morning turnaround and small pullback rally into the close. In fact, though all of the Globex range is inside yesterday’s range, the S&P 500 has retraced 61.8% of yesterday’s prices and sits near that level at this writing. 

Although we are squarely within yesterday’s range and trading around halfback currently, I believe there is some shock and potential for imbalance to this open as futures are opening well away from the bullish settlement and on 100% net short overnight inventory. Treat it like any other orthodox gap with the caveat that gap rules are not officially in play (not a true gap as we are opening within yesterday’s range). Since we know that the initial move should be to correct some of that overnight inventory, what actually happens will leave us with plenty of information.

This still leaves the possibility that we overshot the rising wedge yesterday and still may dip into the cycle low and options expiration on Friday. But it doesn’t matter. As with yesterday, we need to follow the usual plan and let the market take us where it wants to go.

Our first downside reference will be the Globex low at 4447, with our second reference at yesterday’s low of 4432.50, which is right above yesterday morning’s downside target, and last Thursday’s weak low at 4430. Above, our references are yesterday’s halfback and the overnight prominent POC at 4454.50, then the Globex high of 4472.25, and then yesterday’s high of 4476.50. Halfback at 4454.50 is my key bull/bear bias line for today.

As a side note, on instruments such as the S&P 500 index, both the ’33 and ’50 handles are always key lines, so the downside levels this morning are not surprising. Usually, if the market can hold the ’33 handle, it will get the ’50 handle. If it can hold that, it goes after the ’62 handle, then the ’77 and ’88 handles, etc. At some point, I will do a write-up on the 100 handle block and how the market works it on the way up and down.

With all these levels, monitor for continuation.

A.F. Thornton

Navigator™ Signals for Day Traders

Epilogue – 8/16/2021

AF Thornton 0 Comment

While the day is certainly a head scratcher, here are my notes. I will try to clean them up later so check back. I did not include notes on the Algo Trigger or Moving Average buy and sell signals as the Bull Microchannel was the dominant trading theme after the morning low. We don’t see reversals like this often, but they are awesome when the occur.

Note that I show you how I moved my stop up on each barely discernable dip in the channel. Not once did the price come close to a stop, a sign of strength. I only sold because I don’t like to be trading in the last hour and I did not want to be too greedy. We hit my 100% target of the first leg up (shaded area) so I exited.

Buyers remain in control. I am not entirely certain if the dip was simply news related from the weekend, or if it was a nanosecond of the 40-day cycle dip. I tend to favor the former over the latter explanation, which means the 40-day cycle may still present itself for a few days later this week.

Breadth continues to diverge from price, a negative sign. Also, defense led offensive today, also not ideal. Growth stocks got clobbered and the Dow led, just as I had expected (rotation). But energy disappointed, so I will give it one more day at most.

A.F. Thornton

Navigator™ Signals for Day Traders

Interim Update – Morning Outlook for Day Traders – 8/16/2021

AF Thornton 0 Comment

Since I just sold my long trade referenced earlier at 4466.50, I thought I would drop you a quick note and update you.

Today is a bit of a head-scratcher. Our macro sell signals will be negated if the market closes this high on the bar. It is unusual to see the market recover a 20 point gap down and then reverse to new highs. Nevertheless, it happens.

Also, wedges fail or barely reverse when the market is in a bull or bear microchannel, as it has been since the morning low on the 5-minute chart, which is what we see today.

Today’s behavior underscores having a good plan for day trading. I will share my notes later, but following my rules kept me in this latest long trade long after I expected to be holding it. Nor did I expect such a profitable day, especially in long trades.

From a macro perspective, the market is being led mostly by defensive sectors. Breadth is negative once again, just as it was Friday. So there is nothing to get excited about.

The best explanation I have for this unusual behavior goes back to the narrative. The primary issue for this market has been a reversal of Fed policy to something less helpful. Global turmoil over the weekend in Afghanistan, the Delta variant, etc., all work to cause uncertainty, putting a cloud over the economy. This takes the pressure off the Fed to raise interest rates or taper, which could have been the course they would take next week in Jackson Hole. We will gain more insight from the last meeting’s minutes on Wednesday.

However, regardless of what the minutes say, the situation has changed, and the Fed is likely to maintain its accommodative stance a bit longer than anticipated. That is the most logical explanation for today’s turnaround.

Even though investors are wading back in on this dip, defensive names are leading. So nobody is throwing caution to the wind quite yet.

A.F. Thornton 

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