All posts by AF Thornton

Navigator™ Signals for Day Traders

New Buy

AF Thornton 0 Comment

The Founders Group has taken a 50% position in the S&P 500 Futures at 4374.50 on the test of lateral support, the demand trendline, the 2-day wave dip, the partial Gap fill, hourly 21-EMA, and successful test of the Globex open (it gapped just above yesterday’s RTH high and settlement so good enough for a test of that too). 

This represents the entry associated with the Navigator Algo high-trigger buy signal on the daily chart. I intend to scale in to 100%, and will share that in these pages as we move along. My stop for today is tight – an hourly close below 4370.50.

Again, do not emulate this trade unless you are willing to monitor it closely – and I mean very closely.

September at-the-money SPY calls can also be used for the trade, as can the SPY itself if you are reticent (as you should be) to be leveraged.

Our first target is 4404, with a final target at 4500, the same targets as communicated last week before the options liquidation break.

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook 7/23/2021

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Runaway bull escapes slaughterhouse…

Citizen Free Press (CFP) has become a mainstay of my daily reading. It is a news aggregator like The Drudge Report, but Kane, the founder, has not gone off the rails like Matt Drudge has these past few years. 

I grabbed the headline above from CFP last night. Naturally, it got my attention as I thought it was a story about the stock market. Of course, the story actually was about a bull escaping the slaughterhouse. But I thought the headline summed up my thoughts about the last few days. Funny how we filter the world from our own unique perspectives. ‘Where you sit depends on where you stand,’ as the saying goes.

Yesterday was another fabulous day. The volatility continues to be very conducive to day trading and somewhat rare. Yesterday’s epilogue will come out a bit later today. I am experimenting with a more detailed format. If you take the time to follow this detailed and daily analysis, you will learn how to day trade, at least the way I do it.

Today will be all about conquering the old high at 4384.50 (also the Weekly Expected Move High). Above that, there is nothing but blue sky until our former target at 4404, and then 4500. The 4500 level has top channel lines intersecting from all the way back to the beginning of the bull market in 2009. I don’t see how we get beyond that level, but I can argue up to that point. 

Below us will be the Triple Day POC’s at 4369.75, the Overnight Low at 4367, yesterday’s RTH high (also the contract settlement) at 4363.25, and then yesterday’s Point of Control (POC) at 4359. Gap rules are in play this morning.

Overnight activity almost tested the all-time high. The gap is coming on some stacking bullish behavior, so the potential for early trade is there as to a fill or partial fill. As always, how much we get (if any) and how far down we get leaves M.G.I. (think: breadcrumbs) for us to know how strong or weak the market is. Obviously, action will depend a lot on how certain equities that are gapping will act early. Watch them as you would internals. 

Also, note the ending  diagonal on the hourly chart with 24-hour data. It points to the old high as the potential top of the two-day wave. That could portend a reset and some additional work to punch through the all-time high, at least today.

The true gap comes in the context of a market that has been one-sided since the recent lows with only small pullbacks, as evidenced by the two new VPOC’s in the last three RTH sessions. If today’s activity adds another, it goes into our narrative, and the market becomes even more susceptible to a liquidation break at some point.

Use the usual techniques (advanced traders only) on the gap. Look for early failure to break the ONH or a move above the ONH and then back into the overnight range as potential triggers for a fade. The low of the first one-minute low can be shorted, as can any retest of the open on an opening drive higher that fails.

Any stronger upside move has to take out the ONH and obviously has the ATH to contend with as well. Should that be the outcome, make sure internals confirm, gap-up stocks are rallying, and monitor for continuation as there is no longer technical reference above the ATH.

The Navigator Algorithm tripped a high trigger buy signal in the overnight Globex market. The signal would need to follow through today for the Founders Group to execute on it. The target is 4500. As always, I will let you know what we do, but the risks are incredibly high here. You cannot take this signal without studiously managing the trade.

Good luck today.

A.F. Thornton

Navigator™ Signals for Day Traders

Mid-Day Update

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Not surprisingly, we have a range day today with a slightly bearish bias after two good trend days. I have taken one Algo Trigger long off the “h” pattern coming from the overnight action into the morning low for 6 points per contract. 

Then I reversed the long trade into a short target at 4340 as communicated in the pre-market outlook, which could be the bottom of the range. I just covered that position at 4142.50 for 15 points per contract on the selling climax (when the price fell out of the K-Bands). I am flat for the moment. 

Internals are weak today, but not terribly so. This still gives a slight edge to the bears. The bears could argue that we have seen the high of a double top falling just short of the all-time high on the daily charts. 

The bulls will argue that the market needed a rest after two strong trend days. 

We shall see who is right.

A.F. Thornton

Navigator™ Signals for Day Traders Navigator™ Signals for Swing Traders

Pre-Market Outlook – 7/22/2021

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When I woke up this morning, I reminded myself what a privilege it is to undertake this endeavor every day and enjoy the freedom it brings. It is not always easy. In fact, it is never easy. It takes many observations over many years to begin to discern financial market behavior and patterns.

One way I try to understand what is happening at the moment, is to find one or two base periods in the past to compare to the period at hand. That is the advantage of experience. Generally, I have lived a similar period having traded and invested for half a generation.

As to the recovery, 1987. 2000, and 2009 come to mind. I draw many inferences and comparisons to those periods. As to the current market perhaps peaking (short-term) and correcting, there is no better comparison than 1999. I think to myself ‘giddy is as giddy does.’

Jim Rogers, cofounder of the Quantum Fund, and one of the best investors of our generation, faced a dilemma similar to what I am feeling now in 1999. He saw the giddiness of the crowd then, and even shorted the market a few times. Frustrated to his core, he could not take it any longer. My understanding is that he bought some long-term put options, LEAPS as they are called that bet on the market rolling over. Then he left New York, jumped on his motorcycle and traveled the entire globe.

For me, that is quite tempting. This is the free, public version of what I do. You don’t pay for it, so maybe that is all it is worth. I had no problem telling the public to buy after the rout last fall. Over the past three months, I have not been so inclined. The Navigator strategy was up nearly 400% at the end of the first quarter. Now, I am not even supposed to tell you that unless I get licensed. The borderline between a newsletter and registering as an advisor is a fine line. If I get too specific, I have to register. I am not so inclined at the moment, I don’t want to complicate my simple life.

But the dilemma is much the same. If I tell you to take a swing position, as I did last week with the XLF, you see what can happen in just one bad day. We were stopped out on Friday. But I was on a plane and could not send out a note. Granted, you knew where the stop was, but a note still helps. I am sure it was a dilemma. And then I fear that when you got the update Monday, if you sold into the weakness, it would have been better to wait just a day and you would have exited better. It can be quite a dilemma.

We passed the 60% retracement of the decline overnight. That likely means a test of the old highs. We had not yet reached our upside targets on Friday when this decline hit, so they remain open. And we cannot say for sure if monthly options expiration caused Friday and Monday to be a one-off decline like last month’s failed bear breakdown.

So my conclusion is this; I am not going to jump on a motorcycle but I have been around long enough that I am not going to issue a Navigator buy signal until we see a correction of a decent magnitude. That will come sooner rather than later. The monthly S&P 500 chart is in a clear, rising wedge / ending diagonal pattern. That portends the end of a run, not the beginning. It likely means more than a 10% correction ahead that lasts one to three months as it zigs and zags.

We are entering the most seasonally weak period of the year for stocks. We have the monthly chart wedge. There are plenty of catalysts circling. We just need to be patient. If I see any one-offs in a sector here or there, I will let you know. In the meantime, I am satisfied to day-trade until the moment arrives to take a longer-term position.

Today’s Plan

The levels I will be watching today are (i) the point of control (POC or high volume node) recently tagged in three different sessions at 4369.75; (ii) the overnight high at 4361.25, yesterday’s regular session (RTH) high (also yesterday’s settlement)at 4361.25; (iii) yesterday’s POC at 4340; and (iv) Monday’s (July 20) virgin (untouched) point of control (VPOC) at 4315. Always remember that these are the levels I am prioritizing today for rejection or acceptance to help filter the noise, but they are not the only levels where the market could react.

Yesterday’s RTH activity was balancing to higher, leaving the VPOC from 7.20 in its wake. Overnight activity was almost all higher until the higher jobless claims put a slight damper on things, taking prices back down into range. Overall, the reaction seems minor at this point as current prices are holding above yesterday’s value area.

While the short covering rally of 7.20 was very emotional with poor structure, yesterday’s more two sided trade confirmed a lot of the reversal, essentially proving those buyers right for now. Leaving another VPOC today alongside the one from Tuesday would be further confirmation that buyers are in control.

Other than being short term overbought with some potential overhead supply from the Globex session, there is little shock and awe and not much indication as to how the open will play out. The better trades will develop later rather than earlier.

Any strength over the ONH should target that multiple POC area. Consider this a high volume node where prices should be attracted. Weakness should target the POC as this is what markets “should” do. As mentioned above, consider any failure to do so a sign of strength.

A.F. Thornton

Navigator™ Signals for Day Traders

Epilogue – 7/21/2021

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This week has given us the kind of range and volatility that is very conducive to trading. I don’t yet want to comment extensively on where we might be in the macro trend. It certainly looks like another bottom is in place. I cannot explain it with confidence, but maybe I will give it a shot.

There must have been a meeting in New York on Monday. All the big wigs got together in a cigar-filled room. There wasn’t much time; a few of them were headed for their first trip to space later this week.

The main topic of discussion was the Fed. Everyone had a chance to speak. Finally, they summarized the discussion. “Is Jerry over at the Fed still on board until the next FOMC meeting?” “Yes,” said one of the group. “Who’s turn is it to babysit Biden?” “Jamie, are you on it this week?” “I am warning you; he likes to play a lot of backgammon and cards.” It works out, though; I always tell him he is signing his scorecard, wink, wink.” 

“It looks like everything is in place, boys and girls.” “So Buy, Buy, Buy, valuations be damned!” “Delta Virus be damned!” “Inflation be damned!” “Expiring unemployment be damned!” “The crowd has turned negative and fearful.” “This won’t work for us!” “We have to suck them back in so we can unload the rest of our stocks and buy real estate!” “They will all be renters soon!”

“This is the Great Reset, after all, and they won’t own anything anyway.” “We will take their last dollars in this next crash – that should take the fight out of them.” “All we need to do is drop the little worker bees a few crumbs, some video games, and a big-screen TV to keep them happy!” 

Zuck, buddy, “This social media has to go – you sure screwed that one up!” “Whose idea was this texting anyway?” “Was that you over at Apple, Tim?” “Didn’t you realize all these ne’er-do- wells would start talking to each other?” “Kamala, how are we coming on that Chinese governing model? The sooner we get that in place, the better.” We are damn sick and tired of that pesky Constitution!”

“You know, If these people give us any trouble, we will sick the FBI and Justice Department on all the insurrectionists.” We run them now, just like we did in Nicaragua.” As for the rest of the Red State insurrectionists and vaccine dodgers, why do you think we call television “programming?” “Someone get a note off to CNN!”

Anyway, I was in Europe, so I must have missed my invitation. But I think that is what happened and why the market continues to go higher. They call it a blow-off until it blows up. Naturally, this could be my FOMO talking. Regardless, today was a good day.

Today’s Trades

My annotated chart for today appears above. I was able to garner 47 points per contract. That is three fabulous trading days in a row. I take them when they come because most days are not so profitable. Making four to six points a day per contract is more normal. And, of course, some days result in losses. So If this looks easy, it isn’t. The chart you see above was built throughout the trading day, not knowing what was coming to the right of the screen. But the market was a bit easier to read than most days today, as it formed a lazy and slightly up-sloped channel.

Every single trade is meticulously noted. DB stands for a double bottom, and DT stands for a double top. There were lots of different ways to work the day. What you see reflected in the trades is my own personal style – there are many other ways to approach day-trading. I am rarely a scalper, and I leave many trades on the table. I am more like a “swing trader” in the five-minute realm. Most days, I only take two to four trades and am done in the first two hours. As a contrary example to my trading style today, one could have bought the opening breakout and held it to the close as long as there was no serious violation of the 21-period line: one trade, a nice profit.

That brings me to the last trade of the day for me. I call it a flush trade. What happens is that the market takes a sudden plunge and blows out all the stops to the left of the chart at the various support levels. Even I got stopped out for a four-point loss per contract on the last trade I took from the 21-period line. Then, after the market makers load up on inventory at the lows, they blow the market right back up to new highs and offload the acquired inventory to all the shorts panicking as the market comes back.

When I did not know about this operation, I use to throw things at my computer screen. But I have been on to these operators for years. Today, they took the market right down to halfback (the 50% retracement of the regular session range), also the point of control (highest volume node) for the day. 

I jumped in with both feet near the low, with a reasonable stop below the POC. It had already been a good day, so I figured it was the house’s money. I grabbed an additional 18 points per contract into the close. I would have made more, but I didn’t want to chance the aftermarket or get stuck with overnight margin requirements – so I bailed 30-seconds before the close.

I will have more to say about the macro picture later or first thing in the morning. I need some time to assess. I am still drained, and I spent too much time on the screens today. 

But as I always say, you have to make hay when the sun shines.

A.F. Thornton

Navigator™ Signals for Day Traders

Mid-Day Update – 7/21/21

AF Thornton 0 Comment

First, let me highlight that internals have been reasonably strong today, and that gave me the confidence to go with some breakouts. Since breakouts fail 40% of the time, knowing your internals and whether they support the direction you are headed is important.

There was a breakout trade right from the open based on yesterday’s trading range. Double the range, and you have the measured move – which is right where we first stalled today.

Then we based for a while, almost leading me to believe that we would balance the rest of the day, but we did get another breakout from that range, and that breakout is retesting as I write this (another point to add to a position if desired). This breakout is also a breakout from the 30-minute opening range, which projects a much higher figure. Frankly, when the 30-minute opening range is that wide, I don’t usually expect it to double except on exceptionally strong days like yesterday (or weak as the case may be).

You can take long positions at the bottom of the range, but here you had two chances to buy at the 21-period line before the second breakout. I would not work (be short) the top of the range when our market internals are this strong. It would be best if you only were looking for longs on days like today. The range measured move still sits above us, as does the 30-min opening range projection.

There is a problem, however. As you will see above, we may have an ending diagonal (wedge) forming on the higher time frame 2-hour chart. It is pointing to the breakdown level from our last balancing area a week ago. There is a downtrend line there as well. The market may need a rest before it can make further progress. Perhaps it will form a right shoulder dip on a reversal pattern to go higher. 

By this time of day, I am typically done trading and will come back around 2 pm EST to see if there will be an afternoon drive trade. Otherwise, the tempo here has slowed to a crawl, and there is nothing that interests me. 

Many studies of traders find that most of them give back everything they made in the morning by overtrading the rest of the day. In part, this is due to the choppy nature of the New York and Chicago lunchtime and all that follows. Also, there likely is a degree of screen fatigue at work.

You see how detailed my notes can be as I go on through the morning. And you only see part of it. There is no way I can maintain that level of concentration for more than a few hours.

Money is continuing to rotate back to value and cyclicals. After two days, I am not sure this is still short-covering. So we may have another tradable bottom, or we may be in the process of defining a new, summer trading range.

Stay Tuned,

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook – 7/21/2021

AF Thornton 0 Comment

Everything I need to know about life I learned in Kindergarten, right? Remember that book? Lesson 57 – How is this one not like the other one? Compare and contrast?

Comparing recent lows is the central question this morning because this one looks just like the rest of them. So far, the market is emulating every other pivot off the 50-day line this year. And it presents the exact problem I feared Monday. We are out Friday, at least as to our sole, remaining 10% XLF position. Now, do we go back in? That is more of a swing than a day-trading question, to be sure, but it is quite the dilemma. 

Then there were the fund flows yesterday. Treasuries backed off their Monday blow-off climax. Value and cyclicals (including XLF) clobbered growth and technology. Small caps came back to life as well. My first inclination would be that the rotation I expected last Friday is coming a bit late off the liquidation break. The day after monthly options expiration is notoriously bearish, as is mid-month anyway. So the deferred gratification is explainable.

Yet, what if all of yesterday was just massive short-covering? I could see the shorts piling on the weaker value, cyclical and small-cap stocks and indices Friday and Monday, saying to themselves – this is finally it – the 10% to 20% correction. Why not short the weak sisters? More short positions to cover, so more gains yesterday? Maybe rotation, maybe not.

Acceptance is a huge issue in life, and particularly in trading. So do I accept that this is another gigantic “liquidation break?” Is it the beginning or end of something? Do we get the double-dip like May or the “V” bottoms like the others? Is this the 18-month cycle peak? This bottom looked more rounded than a typical “V,” but one must keep an open mind.

Then there is always this: how will the market screw the most people? Aha! We will make the dip look just like the others, draw them all in, then Whack A Mole! Do you see why I have preferred day-trading lately? How can anyone sleep at night worrying about that?

For day-trading, the decisions have been both easier and rewarding. I will take credit for calling the bottom Monday to the tick. I have to take credit when I can – as it makes up for the bad calls. And I had two good trades – pointed out in these pages practically in real-time. There was the short squeeze into the close on Monday. Then there was the Gap and Go that gapped and went per the Gap Rules yesterday.

I hope you don’t mind me sharing these thoughts. As I often say, the circus in my head would make Barnum and Baily envious.

Today’s Plan

Yesterday’s rally had a virtually perfect inversion of the bearish internals from Monday’s rout. The structure was very poor, with the market profile split into multiple distributions. This is normal on a day that is dominated by short-covering, which is an emotional event. While I’m not outright calling for it, note that most rallies off lows start with this type of day structure.

This morning we have a bit of divergence between the S&P 500 and the NASDAQ 100, with the latter trading negative and much weaker. This dynamic and the very balanced overnight inventory in the S&P 500 likely sets us up for some balancing and range day trading for today. When they negatively diverge, the NASDAQ 100 will draw gains from the S&P 500 and vice versa.

The action on Monday left a poor low at the bottom of the distribution. Carry that forward as in need of repair.

The outlook is more neutral in the bigger picture now as both the S&P 500 and NASDAQ 100 have rallied back to about the midpoint of the recent downdraft.

My signposts for potential change would be the ONH at 4338.50 on the top and the start of the single prints at 4303 on the bottom. Price action between these levels would indicate a balancing of yesterday’s one-sided trade. Price action outside of it gives us the potential for change.

Also, pay attention to divergence today. The spread between the /ES and /NQ is quite large currently coming into the open. If you are not sure which is dominant, wait as they usually sync later in the session.

A.F. Thornton

Founder's Trading Journal

Mid-Day Update – 07/20/2021

AF Thornton 0 Comment

Looking at the above two-hour candle chart of the S&P 500 Index Futures with 24-Hour Data, you will see that the market has made a symmetrical ABC correction back up to the 5 and 21-day EMAs, also the roundie at 4300 and the measured move off this morning’s break-up from the ON trading range. I rode the Gap and Go trade with two contracts, scaling out of them for almost 59 points. As mentioned yesterday, this volatility can be very conducive to day-trading.

The question now is what to do next. These two-step moves are the hallmark of corrective, as opposed to trending action. If the rally continues higher to maybe a 1.618 move off the “A” to “B” portion of the leg projected from the “B” dip, thereby destructing the symmetry, we can have more confidence in a trend reversal. You can learn more about this by studying Elliott Wave or other materials on corrections.

So this is a critical juncture. I postulated it could take several days to do this, but the market is moving rapidly back to this important level. This could turn out to be a good short, but I would need some confirmation that a turn back down is under way. Internals are very positive today, so an immediate reversal may not be in the cards. I simply want you to be aware of the issue.

When you have a large bar such as the one on the two-hour chart above, it is not easy to be assured that the market is turning down again until the low of that bar is taken out. That would be a poor location to be short from. So I will be watching the lower time frame charts for a turn. The point to get is the importance of the juncture.

Whether or not the intermediate trend has turned down, we could bump along this area until we turn back over for a retest. Incidentally, I forgot to mention that the market also had support yesterday from the WEM low at 4245, so keep that level in mind.

Navigator™ Signals for Day Traders

Pre-Market Outlook 7/20/2021

AF Thornton 0 Comment

I am struggling to adjust both from sea level back to the mountain elevation, not to mention a 10-hour time zone shift, so bear with me as I am exhausted and thus behind on some of my detailed charts annotating. I will have them later today.

Yesterday confirmed that the market has a tinge of normalcy left, as we finished the fifth down day in a row, broke the very short-term trendline, and bounced from a logical and important support zone. By the way, we might have just experienced the first consecutive five down days since the March 2020 China Virus crash. 

Support came from the gap and breakout area of the three-month consolidation from March to June in the S&P 500. So you have to ask yourself, what (if anything serious) has the market violated here? 

The answer is nothing yet, other than a retest of the last breakout coinciding with the 50-day line. And given the spike in volume, fear, and volatility, the market is perfectly capable of moving from here back to new highs if it wants to resume the intermediate trend. We may need a retest of yesterday’s low before the trend resumes in the next week or so, but we sit on that intermediate trendline and channel bottom now.

I would expect a few days of recovery back to the 21-day line to test it as resistance now that we sliced through it as support. My main point here is, no matter our opinion, and no matter how strongly I suspect that the 18-month cycle has topped, we have to keep an open mind to all possibilities. This market frequently defies any sense of logic, as one would expect with such aggressive Fed intervention. When I have an intermediate buy signal on the algorithms, you will be the first to know. 

Meanwhile, our job as day traders is to take advantage of the volatility. You do this by reducing position size and taking a bit more of a scalping approach to trades. You can already infer that yesterday’s low is now a critical line in the sand. This morning’s gap higher has buyers building on that low.

Pulling back to a wider view shows us that there is still a huge unfilled gap above us from yesterday. Opening prices are going to start the day within that gap. The market doesn’t like gaps, and gaps should fill. If they don’t, we have a When What Should Happen Doesn’t (WWSHD) moment, which gives us some important and objective Market Generated Information (MGI) to work with. Failing to cross the overnight high (ONH) today would be a sign of weakness.

Given the size of the gap above us and the fact that overnight activity filled very little of it, and we are currently well off of the ONH, it tells me that short covering may be already on the wane. Yesterday’s regular (RTH) session can be a very different animal from the overnight one, but those are the initial impressions.

Gap rules are in play for today’s session. The overnight inventory is 100% net long, so we know what should happen in early trade, which would be the corrective move. Early trade will tell us a lot about the nature of the short covering in the overnight session. A lack of early fade will mean that buyers are not done, and we should bias long, monitoring for continuation as we go.

Note that the ONL and settlement are almost identical, around 4254. That means that once all overnight longs are relegated to the “wrong” column, screens will go red around the world as well. I would bias short below that level. The RTH Low (4224) was poor yesterday and should be carried forward for a potential further short trigger as it needs to be repaired. I could argue that it is a weak low because it was a bounce from the 50-day line – a nuanced level for short-term traders.

Good luck today,

A.F. Thornton

 

 

 

Navigator™ Signals for Day Traders

Interim Update – 7/19/2021

AF Thornton 0 Comment

Can You Say Short Squeeze?

It took a bit, but the short squeeze finally gripped. Look, when you see the index basing around the lows and the put/call ratio high and rising, you know that these shorts are poorly positioned, not being rewarded, and likely to panic by the close. They often all head for the exits at once and buy to cover.

Today, it had to be especially difficult to hold the short on the S&P 500 when the index moved back above the 50-day line, usually strong support and an institutional money manager buy point. If you were short, there would be a lot going through your head with that in mind.

I rode two contracts into that high and covered with about 50 total points of profit. As to the market, I am not convinced that the correction is over, but more likely, it is just getting underway. It will zig and zig, giving us a lot of nice trades like this.

I will do the usual play-by-play in the Epilogue later tonight. It is good to be home and have nine screens again. Did I mention how much I love trading? If not, let me do so again now.

A.F. Thornton

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