All posts by AF Thornton

Epilogue – 6/15/2021

Nothing like getting the Pre-Market Outlook after the close, right? The updates must have been strange today without the base information. Somehow the writing got stuck in the scheduler this morning. It is out now, but prints below the two previous updates. Simply scroll down. I will do better tomorrow. Every once in a while, I will encounter a technical glitch.

The close was unimpressive, and we closed inside yesterday’s range. No surprise ahead of the Fed announcement tomorrow. I can argue both for higher or lower prices – but remain satisfied to be in cash for our Navigator swing strategy. As for day trading, the bias is still bullish, as we closed above the 5-Day EMA and Navigator trigger line, though not by much.

The market eeked out a new all-time high, but only in Globex last night. As for today’s session, the market could not fight its way out of a wet paper bag. It simply wound down from the open, with a few flurries higher in the afternoon. The flurries led nowhere.

Tomorrow is a crapshoot – so your guess is as good as mine. My concerns have been laid out in these pages. One caution, however, is in order. What if the Fed does start talking about tapering or even raising rates sooner than anticipated due to inflation concerns?

One assumes that the market would interpret such news negatively. And likely it would. But when a market wants to go up – it goes up. The narrative could shift to celebrating a “vigilant” Fed. So, don’t ever think you can figure these events out. We know the issues – let the price tell us what to do next. It will. It always does.

A.F. Thornton

End of Day Update – 6/15/2021

We did get the anticipated turn at the last update, anemic though it was. We are a bit past the afternoon drive time with a slight rally underway. The tempo remains slow, with internals mixed at 50/50. Hence the lack of trend.

The NASDAQ 100 has been weaker than the S&P 500 today, kind of the reverse of yesterday. Unless we have another shooting star into the close as yesterday, we could close back inside the balance range.

We will resolve tomorrow, after the Fed announcement. It could get interesting if they talk about, talking about, mentioning, possibly thinking about, tapering QE, or raising interest rates, sometime in the next 10 years or so.

No surprises.

A.F. Thornton

Mid-Day Update – 6/15/2021

S&P 500 Futures - Regular Session Data - 5-minute Candles

A not surprising snoozer ahead of tomorrow’s Fed meeting and resulting word salad announcement. So far, today looks like an algo/gamma selling program winding down like a vine from the open. There is a bit of percolation going into lunch – maybe they can turn it here. But the internals are in all-out failure mode.

Keep your stops tight. We are selling target to target. The 15-minute chart has dropped below the 21. The next target is the triple POC at 4228—no follow-through from yesterday and fairly compressed range expansion. Long inventories are building out there as a result of the marginal breakouts we have been experiencing. If they all head for the exits simultaneously, that will give the bears an edge.

Pre-Market Outlook – 6/15/2021

The Squeaker with a Hail Mary Pass

The Micro Narrative

I only just realized that this discussion got stuck in the scheduler this morning and did not go out timely. My apologies. The information remains accurate – but the updates must have seemed a bit strange today without this base information. 

After struggling since early May, the S&P 500 has finally achieved a definitive breakout, closing at new all-time highs on above-average volume. It would be nice to have a few more points on the board above the old highs, but sometimes we take what we can get. The important support identified yesterday held, though it was an explosive move in the last 30 minutes that catapulted the index through the resistance levels.

Before we celebrate too much, the market was carried to new highs by the Monsters of Tech – or FANGMAN+T as we sometimes reference the acronym for Facebook, Apple, Netflix, Google, Microsoft, Amazon, Nvidia, and Tesla. As pointed out yesterday, many of the economically sensitive sectors have rolled over below their 21-day lines. Partially, this is due to interest rate levels abating lately. So breadth on this run is less than perfect thus far.

The market’s job now is to stay above the breakout, maintaining the positive bias.

Today's Day Trading Plan

Our plan always starts with knowing our neighborhood. We need to map all key levels and trendlines we are likely to encounter today.

From there, we have to prioritize the levels we expect to be today’s inflection points – the so-called lines in the sand – so that we don’t end up on a side road. Obviously, some lines and levels are more important than others. It would help if you similarly mapped any instrument you trade.

Futures are just underneath yesterday’s high, and also 12 handles off of the overnight high, so we don’t fit the definition of shock and awe, but some fade may still be in the cards given where we are. In a fade, target the bottom of the single prints at 4238 initially and monitor for continuation.

 
Obviously, any failure of countertrend activity would be construed as bullish (WWSHD) if over yesterday’s high. As the S&P 500 index made the all-time high in an overnight session, we consider it less secure than regular session one. Auctions will usually not end this way.

As the market is contemplating the important FOMC meeting starting today with an announcement tomorrow, there is also potential for further balance. Never discount this outcome.

Friday is quadruple witching – so I likely will await tomorrow’s decision and look to trade on Thursday.

Yesterday’s low is my line in the sand today.

Good luck today.

A.F. Thornton

Final Comments – 6/14/2021

The behavior of many underlying sectors is concerning today, giving the appearance that the market is rolling over. The FANGMAN+T group (Monsters of Tech) is holding the market up – with the cap weighting we became so accustomed to last year. Beyond that, NYSE internals – in a few words – delivered unpleasantly. We saw that reflected in the sector performance – or lack thereof.

We may get a squeaker of a close above the key lines I have been referencing. But for me to stay positive for day trading, I need to see a close above 4233 on the S&P 500 futures. The Navigator Algo Swing Strategy is 100% cash, where it will remain for now.

In short, the market is hanging by a thread, but the market has survived these threads lately. The NASDAQ 100 remains positive, as one would expect with the Tech Monsters holding things together at the moment.

No further clarity today – which gives credence to the “marking time into Wednesday’s Fed Meeting announcements” theory.

A.F. Thornton

Mid-Day Update – 6/14/2021

S&P 500 Futures - 24-hour 5-minute Candles - Shaded Area is Globex Trading

Not much to report mid-day, except that tech is holding everything together by a string with superglue. Materials (XLB), Financials (XLF), Industrials(XLI), Transports (IYT), Energy (XLE), Consumer Staples (XLP), and the Dow Industrials themselves (DIA) are all tucked under their important, 21-day lines. That is less than ideal. The Energy sector is notable because oil prices actually hit new, post-pandemic highs earlier today.

Tech (XLK) and real estate (XLRE) are the only positive of 11 S&P 500 sectors. The XLU (Utilities) is only slightly negative. I look at XLRE and XLU as defensive. Even the IWM (Small Caps) are negative mid-day. Tech is responding to the current pairs trade with treasuries – at least that might be a plausible explanation as to why it rides alone in the “risk-on” wilderness today.

Man cannot live by tech alone – except right after the Wuhan Lab-Leaked China-Virus with the massive, dubiously-tested, dangerous vaccine experiment underway. I am less than serious about the last sentence but wondered if I could get all the offensive language in a single sentence to trigger our new, communist censors out there, about whom I could care less.

Back to the issues at hand, what are the sectors telling us today? Not the Monday the bulls had hoped for. It is now up to the bears to press their case, starting with taking out swing lows in the aforementioned sectors, rather than just the 21-day lines. Absent that, we lean more and more to the trading range scenario I have been forecasting on the daily charts.

Otherwise, perhaps the market will mark time until Wednesday’s FOMC announcement. And while there is no expectation of a rate change, it sure seems possible that the Fed will announce some QE tapering – why else would the market be so shy here? I mean, someone always knows. There are always insiders. Perhaps that explains why last week’s inflation report didn’t give the S&P 500 enough thrust to move out of the range.

We are at a point where I will consider shorting rallies, even on a swing basis. But for now, let’s see how we close. 

Thus far, the downdraft is orderly, and the bottom may be rounding to move higher in the afternoon drive, but my bias shifts to negative if we close under the cluster of support in my morning update ranging from the hourly 21-EMA at 4234 all the way down to the 5-day EMA at 4229. Incidentally, the Navigator Algo Trigger line sits at 4233. A close below that is a bull case deal killer for me.

A.F. Thornton

Pre-Market Outlook – 6/14/2021

Mischievous Math

Another new week has arrived, but little has been resolved on the surface of our perpetual S&P 500 balance area. Yet, arguably the market is in a rally phase, most notably and surprisingly carried by the NASDAQ 100 and growth stocks. Admittedly, a NASDAQ 100 rally that would flirt with new highs did not seem like the most likely path to carry the market higher a few weeks ago, but that is simply part of the markets’ mischievous ways.

I am calling it mischievous math because, but for the mix and weighting of the sectors and leaders, the S&P 500 would be rallying too. Sometimes we call this a stealth rally. And every once in a while, we have to go outside our core S&P 500 index for opportunities. For the most part, however, I find I can meet my day-trading needs by trading the index futures.

Currently, the S&P 500 index is in a rising wedge pattern with waning momentum. That combination is negative, at least pointing to somewhat high short-term risk. We have recently discussed the concerning complacency reflected in the VIX and CBOE Put/Call ratio. Adding to the quandary, the S&P 500 / U.S. Treasury ratio has been rolling over of late. This is as much due to the treasuries rallying as it is to any weakness in the market itself – which we know to be trading sideways. So we must ask the question, why are treasuries rallying? Why is the ratio weakening?

There are three possible reasons. First, the treasuries might be rallying as an indication that inflation fears have abated. Second,  there could be fear of economic weakness ahead. Third and finally, market participants might be getting defensive. To a degree, all of these concepts are applicable and related. 

For now, I will resolve the inflation issue favorably as the TIPS / U.S. Treasury ratio is consistent with inflation expectations abating. TIPS are the inflation-sensitive bonds issued by the government some years ago. The recent jump in growth stocks is related and consistent with interest rates behaving or benefitting from an option pairs trade. The NASDAQ 100 is leading again this morning.

Other risk-on / risk-off ratios are not sounding major alarms. So the idea that market participants are getting unduly risk-averse does not hold water quite yet. Nor has any warning of economic weakness manifested; recent economic reports have been telegraphing quite the opposite. Still, given the intermediate risks, it is unwise to establish new swing positions here unless you trade a smaller timeframe chart, as with something less than two-hour candles.

Today’s Plan

On Friday, I laid out a good synopsis of the day-trading strategy. Use it as a continuing reference. Once everything is password-protected, the discussion will be set forth with even greater detail, as I do with the Founder’s Group.

In general, I don’t trade on Mondays, and I am usually in cash mid-month. I have found over the years that strange things tend to happen on Mondays, likely because assessments made in the calm of the weekend may cause traders and portfolio managers to change their holdings. As to the monthly cycle, I find that the month often looks like a smile. The indexes are strong at the beginning and the end but weak in the middle.

In sharing this information, I am describing tendencies. It is always important to keep an open mind. We always trade the chart in front of us with price as the most important indicator. As such, the 5-day EMA did catch the fall on Friday and remained a short-term line in the sand. That was an important test. From a day trading perspective, then, the bias remains positive above the 5-day line.

The S&P 500 has a 63 point expected move going into Friday. So that is a 126 point total range and volatility for the week. Keep the WEM highs and lows in mind. You can add and subtract 63 points to Friday’s close to calculate them.

Use Friday’s key levels as a reference – but bring the variable numbers forward. Not much has changed. This makes sense because the value (high volume location) was unchanged on Friday, and there was no new regular session high. Carry all this forward into your narrative.

The overnight distribution has a classic 45-degree angle which traders should note. As always, consider Globex distribution patterns to be of slightly less import than regular session ones, but note them. In my education and experience, the 45-degree line is really the only Globex pattern to carry forward into the day session. In addition, the 45-degree line portends that the Globex low should be secure. Should it be lost, that is an important piece of information.

There is an FOMC meeting this Wednesday (6/16). Market participants will anticipate no change in rates. However, if the Fed acknowledges that inflation is becoming a problem and even hints that they may have to start tapering QE, expect some fireworks.

This is not a market opening I would trade early, given the current context. Some cross-currents of strong overnight activity mark a new all-time high well above the two-day range. But read that in the context of current prices now deep into the overnight distribution range. And even though prices are low, they had difficulty getting much lower thus far – hence the 45-degree line and low. The Globex low is right at Friday’s settlement.

I need to mention that I would technically consider the Globex low “weak,” – meaning it is an identifiable reference point that amateurs trade. Given the importance of the 45-degree angle and low, consider a violation of this level as a potential short trade.

Conversely, holding above the two-day range would be new, all-time high territory and “should” have us long-biased. Day traders should note any failure or struggle to do so.

All that being said, we are trading in a rising wedge. Watch the top line of the wedge. Wedges often experience a throw-over to suck the last buyer in before the market rolls over. Don’t be fooled. Be wary of holding above the wedge topline.

A.F. Thornton 

End of Day – 6/11/2021

Sure, it is approaching 11:00 pm here on a Friday night, but I would having trouble staying awake with this market regardless. Remember Pete and repeat? They are back again today.

Nothing is resolved in terms of balance. The cluster of support around the 4220 – 4225 area caught the fall, as I suspected it might this morning. It may have saved the “look above and fail” trip to 4205. Time will tell.

We called the low of the day within minutes after it was in – 14 contracts traded was the key. That is where volume and market profile can help. The “V” drive was a nice long.

Settlement is likely to be at the same level as most of the past week.

All doubts in a bull market should be resolved in favor of the bull. We can start there and update the narrative over the weekend.

Enjoy the time off for a few days. I am glad the snooze fest is over this week.

A.F. Thornton

Mid-Day Outlook – 6/11/2012

Yawn. While it has been a slow road today, the market has thus far survived the tests previously discussed and congregating around the 4225 – 4227 area. Investors traded only 14 contracts on the S&P 500 at the 4221.50 low, which could be the low of the day.

Perhaps there will be some action at the close, but nothing is resolved. The market remains in balance and largely in the same value area as the past week. Tempo is slow, internals are mixed, and that won’t drive a trend.

There is a nice “V” off the lows and into the 4228.30 settlement from yesterday. With another small dip forming a right shoulder, we may have a long trade before the close. I did take a nice short off the 4236 area this morning, but my confidence level was not high enough to convey it. I used two micros and made $50. Again, yawn.

I would take a long trade if it presents, but I want to be out for the last 30-minutes of trade on a Friday. I think it is up to the bears to press their case here. We can criticize the breakout failure, but we have not broken down either – at least yet.

Stay tuned,

A.F. Thornton

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