All posts by AF Thornton

Founder's Trading Journal

Morning Outlook – 4/28/2021

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Navigator System Status - Daily Chart
Close-Up

Don't Day Trade Fed Days

Nearly everything in life is a gamble, including trading. The wife always teases me – “are you gambling in there or playing computer games again?” “Anything to avoid a real job.” Well, since the last time I had a real job was April 1987, not much is likely to change.

But as with life, we assess risks and probabilities before forging ahead in trading. We weigh the pros and cons. Maybe I am delusional, but risk-taking is a matter of degree when you are weighing evidence and assessing probabilities.

Today, the Fed will conclude their latest meeting, and Chairman Powell will hold a press conference. Fed policy is somewhat elevated in my weightings at the moment due to inflation expectations. The Fed will announce today’s press release on monetary policy and interest rates about two hours before the close. No change in policy is anticipated, but every word of the press release and Chairman Powell’s back and forth with the press will be dissected.

To make a long story short, unless you are a pure gambler or you have a specific and targeted options strategy, it is unwise to day trade today in light of the looming announcement and press conference – unless you a purely gambling on the announcement. That holds true for any day when major economic reports or other events loom over the market. On Fed days, we typically see a low volume balancing market before the announcement and then some wild volatility after – depending on the content of the announcement.

Moreover, tonight President* Biden will speak to a joint session of Congress and announce various tax proposals. The proposals (which are just that – proposals) could have a big influence on the markets tomorrow. Keep in mind that, as with any negotiation, you typically start higher than where you truly believe your proposals will be accepted. There likely will be some of that tonight.

The Capital Gains tax proposal several sessions ago likely was a high volley to start negotiations. The market had a knee-jerk sell-off that created a buying opportunity. So my advice is don’t panic quite yet, as we see these two significant events pass in the next 24-hours. As well, my advice is to let these events pass before making any material investment decisions as we approach the end of the month on Friday. 

Good luck today, I won’t be advising or trading – as it would be pure gambling.

A.F. Thornton

Founder's Trading Journal

Morning Outlook Update – 4/27/2021

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The S&P 500 and NASDAQ 100 have been falling right from the open. As pointed out this morning, the levels at 4172 and 13933 on the S&P and N100, respectively, are critical. If these levels don’t hold, we will dip down into the previous trading range and risk double tops in both indices.

With all the negative divergences on the daily charts at the latest peaks for both indexes, the market might have reached the intermediate peak we have been expecting – and this would favor the short side in day trading. 

Let’s see if the levels hold. Otherwise, you may be witnessing the 18-month cycle peak. It is too early to tell this morning, but carry that forward in your narrative.

Navigator™ Signals for Day Traders

Morning Outlook 4/27/2021

AF Thornton 0 Comment

The last few sessions have had overnight distributions that have exhibited 45-degree line patterns or close to it. These lows (S&P 4176 and NASDAQ 100 14,000) have proven secure, and last night’s distribution is no different. Remember that traders do what works until it doesn’t, so assume these lows to be secure until they are not. 

Price made new all-time highs in the overnight session. Carry this forward as potentially less secure as auctions don’t usually end on an overnight session. We also have an extensive Time Point of Control in the S&P 500 at 4181.25 in yesterday’s regular session. Wide TPOC’s are more likely to be tested than more narrow ones. Early trade could easily revisit this area as it is not far from current prices. 

Remember to continue to carry forward untested and unrepaired structures from prior sessions. It’s easy to forget these when faced with a market that is trading very one-sided right now. That means the top of the single prints at S&P 4160 and NASDAQ 100 13,933 (from 4/23) would still be in your narrative. Then, should the tone change abruptly, you will have references at your disposal.

Use the prominent TPOC in the S&P 500 as a reference today and assume that the price will trade through it at some point in today’s session. Use that information for potential fades back to this level or rallies up to it when trading on either side.

On the S&P 500, yesterday’s profile distribution is very tight, and the range is small. There is also a lack of material excess on the top that corresponds with a prior regular session high. Assume potential for a long breakout above that area. By the same token, assume the potential for a downside breakout should yesterday’s low at 4173.25 be taken out. 

In either scenario, context is king, and internals are more important than ever when attempting a range breakout.

Good luck today.

A.F. Thornton

Navigator™ Signals for Day Traders

Morning Outlook – 4/26/2021

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Volume / Time Profiles

Friday’s rally was strong enough to negate weakness from Thursday and also closed at a new all time high. Overnight activity is balancing around the volume point of control which indicates acceptance for now. The overnight range is relatively muted and balanced. There is negative divergence this morning between the NASDAQ 100 and S&P 500 futures. The S&P’s are currently flat and the Nasdaq 100’s are off 18. 

The divergence is minor but should be a carry forward in your narrative. It increases the odds of further balancing activity in the day session today when the indexes are fighting each other. Assume balance within the value area and no change in tone unless there is any acceptance below the single prints (about 4160 on the S&P 500 and 13850 on the NASDAQ 100). 

Structure (elongated and stretched) was poor on Friday. Carry that forward. The prevailing market narrative is typically stronger than poor structure unless that structure really starts to stack with multiple concurrent days.

Dropping down to a 2-hour perspective, the indexes have weakened further on this latest run out of the volatility ping-pong that was last week. The activity looks a bit like a “4” wave in Elliott parlance on the daily chart. That would allow for a final poke higher on one of the multitude of significant events this week; Biden tax proposals, Fed meeting and announcements, and monsters of tech reporting earnings. Keep these events and announcements on your radar so you are not lost in the weeds and caught off guard. As I have been harping, disaster stops are more important than ever.

We will be opening in balance, within the upper half of Friday’s range on both indices. Overnight inventory is slightly long on the S&P 500 and slightly short on the NASDAQ 100, though the overnight range is short and squatty in both indexes. All in all, there is little to guide us on the open, so it pays to let the index hem and haw a bit before taking a position. 

My overall bias is neutral to negative down to the 21 EMA on the daily chart where I want to see how the market reacts. Both the NDX cash indexes are trading below the 15-minute 21 EMAs, also a negative short-term.

With everything mostly in balance at the open and little to guide us, look to internals for your first cues. If the S&P 500 A/D line is between +200 and -200, and ticks are between +400 and -400, I look for a range day and responsive trading from both ends. Tension between the NASDAQ 100 and S&P 500 also tends to lead to range days. Range days also have a tendency to follow strong trend days such as Friday. If the A/D and ticks are tending to exceed those levels in either direction, a trend day is likely in the applicable direction. Don’t forget to run an early heat map to see what influence the big caps are having on returns.

Then, with my key levels in place, I evaluate the market as it tests each level, e.g. the overnight high and low and yesterday’s high and low. Are we dropping down below the open or coming back up through it. Watch your internals as we tap these levels. What are the ticks doing? What is volume doing? How is momentum? Where is the algo trigger? Did we make it through the level? Monitor for continuation or accept the failure and reversal and take your direction accordingly.

Finally, run a 15-minute chart on the cash indexes. Bring in the 21 EMA. On range days, it cuts through the middle of the price action. But on trend days – whether up or down – the 21 EMA is where you look to put on positions. Running a VWAP with a couple of standard deviation bands is also helpful on range days. Fade the bands and cover at the VWAP line.

 We are looking for 63 points up or down from Friday’s close for the Weekly Expected Move on the S&P 500. The number is 312 points on the NASDAQ 100.

Good luck today! I don’t trade Mondays, typically.

A.F. Thornton

Founder's Trading Journal

From the Top Down

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Navigator Swing Strategy - 100% Cash

Castle Rock, Colorado

This new and focused publication will record my current, intermediate view of the U.S. stock market as defined by the S&P 500 index and interpreted by our proprietary Navigator Algorithm™. It will typically published over the weekend. I will issue various buy and sell signals along the way – as further discussed below. You can extrapolate the information in these pages to most U.S. equity indexes and stocks. I choose the S&P 500 index to represent the U.S. stock market because it is the most heavily traded equity index globally.

When the Navigator Algorithm™ is in a sell signal, going long the stock indexes, sectors, or individual stocks is like swimming up river. Why is this so? Because there are numerous studies that prove 60% of any stock or sector’s return is attributable to whether the market is going up or down. With so much indexing these days, the market’s influence is likely even greater than the older studies would indicate. I like to say that there is probability, plausibility, and actuality. Luck is not in my vocabulary – so why fight the headwinds of probability.

In 2020, the Navigator™ swing strategy focused on being in or out of one S&P 500 E-mini futures contract resulting in a nearly 900% return. This year, I expanded the strategy to include trades in the other major indices and options on some leading sectors, using Sector ETF’s. The returns have been rewarding, and I will have the results back today from the accountants for the first quarter. But to be frank with you, it is too much work. Just the fact that I need accountants – because the stocks, options and futures are in three different places with three different custodians – illustrates the complexities involved.

When one has a successful market model and algorithm such as the Navigator™, indeed we are open to a world of possibilities. One can broaden out to other indices, sectors, and even individual stocks. I have leaned in that direction a bit this year, mostly because I get bored.

However, I also have to remind myself that I don’t live to trade; I trade to live (the wife likely would challenge that statement). The S&P 500 index itself is diversified and safe enough that long ago, I decided that it would be less work to solely trade the index. To enhance returns, I use the leverage offered by options and futures to make all the money I need.  That approach has served me well, and I am returning to it for the rest of the year in the swing strategy. It also helps to keep these writings simple and focused on the bottom line. In or out, long or short, those are the only issues.

The chart below is the best illustration of the S&P 500’s cycle location. This particular chart shows the path of the nominal 18-month cycle, the fact that it likely is peaking, and the preliminary correction target. 

S&P 500 Index - Cycle Analysis

The peak illustrated above is happening in the context of (i) unprecedented historical valuations, (ii) dumb money sentiment extremes, (iii) nominal cyclicality, (iv) entering negative seasonality, (v) defensive sectors asserting leadership, and (vi) new all-time highs in the S&P 500 unconfirmed by momentum strength, individual sectors, and other indices that should be confirming it. So there you go, it is really that simple.

When all of these variables are coded and weighted into our Navigator™ Algorithm, we have a preliminary sell signal, perhaps allowing one last poke higher in the S&P 500. This would be a perfect week for the index to crest – though my time target still falls soon after the first few days of payroll deduction fund flows in May. To negate these possibilities, we would need to trip the algo trigger and polarity switch reflected in the system status labels at the top of the chart below. Those are the levels that would need to be breached to negate the sell signals – but be aware that the levels are dynamic and move with price higher and lower.

On Wednesday, President* Biden will present all of his tax proposals to Congress. The monsters of tech all report earnings this week, including Tesla after the bell today. Wednesday also will conclude the latest Fed meeting and Chairman Powell’s press briefing. That is a lot to chew on this week, and any one of these events could help the market put the landing gear down.

And then there is that old market axiom – “sell in May and go away.”

A.F. Thornton

Navigator™ Signals for Day Traders

Morning Outlook – Friday 4/23/2021

AF Thornton 0 Comment

I don’t write the Epilogues every day. I like to use them to illustrate points that will help you improve your trading. Yesterday’s severe liquidation break on President* Biden’s tax announcements illustrates three important points.

First, you should always have a disaster stop. Where you set them is personal – more of an art than a science. I tend to use 15 points on the NASDAQ 100, which I trade most of the time. Tracking the Average True Range over the last 14 bars can also help you calculate a stop – perhaps one or two times the range. Believe me, my disaster stop has saved me from more than one news event over the years.

Second, yesterday illustrates the risk in the markets at this time. Biden’s tax proposal was just that – a proposal. It is likely the first volley by our current, Marxist ruling class. It is not the final number. But the markets’ knee-jerk reaction illustrates the delicate underpinnings at these levels. One should decide whether it is worth trading at all until a significant correction – maybe greater than 10% – presents. Such a correction is building right now, as there are many chinks in the armor already.

Finally, the market was saved once again by the Weekly Expected Move low. I mentioned this yesterday morning, not even knowing that such a liquidation break would present. Always have the WEM levels marked on your trading screen. Bailing out below that level yesterday would have been foolish. Perhaps one could make an argument that if the institutions had really pressed the gas pedal yesterday, the WEM low would have been obliterated. It wasn’t.

Another rule I follow, which is not hard and fast but also a savior yesterday, is that I don’t trade after lunch starts in New York. On exceptional occasions, I will take an afternoon drive trade around 2:30 PM EST. So I was not in the market to enjoy yesterday’s bloodbath. In fact, I was writing on these pages in the midst of it. And now I realize that I had not completed my description of the internals screen – which I will do later this morning.

The overnight distribution has a bit of a 45-degree angle to it. The overnight low is also very close to the volume point of control at 4127.75. While it’s not a day to trade near the bell, keep this level in mind as potentially secure in early trade and carry it forward as our line in the sand today for negative bias if it is breached.

Overnight activity since then has been bullish, with a very squat profile and balance squarely within the lower end of the value area. As traders extended the range, the halfback at 4143.50 is a key level and should be marked off as the line in the sand where an imbalance of those knee-jerk sellers from yesterday will start to feel some collective pain. Finding acceptance today above halfback should signal that the break was just short-term, rather than long-term, liquidation. 

I would also say with a bit less conviction, that holding below halfback for too long with value unchanged to lower implies that more selling could be coming. But the WEM low, which is about the same as yesterday’s low, is likely to cradle us. If traders could not breach the WEM low yesterday – it seems doubtful they could do it on weekly expiration today.

If the WEM low is taken out today, the 4100 roundie then comes into play which is also the 4/9 volume point of control.

As you already know, I don’t trade on Fridays, especially when we are skirting the edge of the expected move.

Good luck today – but I would not be surprised to see a slop fest trading near the expected move for a good part of the day. The overall bias is bullish as long as the S&P 500 stays above the 21 EMA on the 15-minute cash index chart.

A.F. Thornton

Founder's Trading Journal

Morning Outlook – Important Sell Alert

AF Thornton 0 Comment

The markets just caved (hopefully temporarily) on President* Biden’s announcement of a 43.4% Capital Gains Tax. The current tax is 20%. 

Remember, it does not take much of a gain on your home or stocks to put you in Biden’s “rich” category. While it is important to start working down the debt, this tax would wield a devastating blow to all capital assets, from real estate to stocks. This could literally kill the real estate market overnight. Do you have enough grey hair to recall the 1986 Tax Act and what it did to real estate and the Savings and Loan industry?

The proposed tax also has potential to cause anomalous behavior by investors before its passage. The proposed tax could also act as the catalyst for the 18-month cycle peak. I doubt it, but I will keep an open mind.

The ruling class in Washington D.C. right now is the most dangerous I have encountered in my lifetime. They are, in a word, scary.

Condolences to everyone, but there is a reason our Navigator Swing strategy remains 90% in cash and 10% in Gold. We are closing out the Gold position today. Taxes are deflationary.

A.F. Thornton

Navigator™ Signals for Day Traders

Morning Outlook 4/22/2021 – Update

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I thought I would take a minute this morning and share my market internals screen. I have everything tuned to 2-minutes for sensitivity, but anywhere from 5 to 15-minutes is also useful. I custom-coded this chart, so it is not publicly available. Send me an email at info@bluprinttrading.com if you would like me to send it to you with the custom-coded indicators built-in.

You see the New York Stock Exchange stats and broad NASDAQ markets in the upper left corner. Today, we see roughly 2:1 positive NYSE and NASDAQ breadth (there are 2 stocks up for every stock that is down). The NYSE is slightly weaker than the NASDAQ. Yesterday, when we were trending, it was more like 5:1. The candlestick chart below the stats is tracking up versus down volume. Today, we have more volume going into gainers than losers, but not by a lot.

The next chart below is up versus downticks. We have been mostly in the green today but slipped into the red over the past 10 minutes. Ticks can often diverge from price, giving you a warning of a turn during the day. They also give you a sense of tempo and strength, depending on whether they are hanging out above or below zero. The ticks have traded mostly above zero today, with the pullback now coming during lunch in Chicago and New York – typical behavior mid-day and not calling the positive trend into question.

The final chart in the sequence on the left tracks the advances minus declines for the S&P 500 index. You can see we are dancing around the zero-line today, but the A/D line has continued to improve throughout the day. That is classic “balanced” behavior, perhaps transitioning to an uptrend that will allow the markets to take out yesterday’s highs.

The screen then shows the S&P 500 index with 2-minute candles in the middle of the screen. Below is a histogram that monitors all four major indexes combined; the S&P 500, NASDAQ, New York Stock Exchange, and Russell 2000. The ticks are then broken down by individual index below at the bottom. Cumulative ticks also help confirm turns throughout the day, as well as strength or weakness.

Note also the readout of each of the 11 S&P 500 Sectors ranked in order of their weight in the index (also labeled) with a readout of the gain or loss for the day. I color code these red or green depending on whether there is a positive or negative gain. At one glance, I can sense the market breadth – like today when half are red and half green. That tells me at least that we are in balance and moving sideways.

But then, I look at the weighting of the greens versus reds. Clearly, the weightings are tipping in favor of higher versus lower prices. But the gains are only slightly above zero at this writing – so this tells me the market is still balanced, trying to tip towards an uptrend.

On-trend days, the sectors tend to correlate to mostly green or mostly red. Knowing the weight also helps me assess whether the large-cap tech and growth stocks can overcome the broad market due to their dominant cap weightings. I know the weighting of the large-cap leaders by heart, so I don’t need specific readings, but a quick heat map can resolve any doubts.

The heat map below shows me by square size, color, and sector what companies contribute to gains today up or down. I typically apply the heat map to the S&P 100 or NASDAQ 100 for quick reference. If the index is going to be range bound, the heat map can help you find a stock that might be trending.


Each morning outlook is based on our ongoing narrative, the previous day’s action, and the overnight trading in Asia and Europe. I am well prepared for the day ahead – based on considerable trading experience. Giving the NYSE about 15 to 30 minutes after the open to settle down, combined with a quick heat map, gives me the final information I need to know as to whether the probabilities favor the market trending up or down or a trading range. The trading tools and tactics are different for balance versus trending – as you would expect.

Tempo also adds confidence to the picture as it tends to be faster on trend days. Asking me to trade a slow day with a slow range is boring. I have to step down to a 1 minute or tick chart and trade some size to make it interesting.

I hope this helps you better understand when I mention “internals,” “tempo,” and “monitor for continuation.” What is monitor for continuation? We ensure that the internals don’t start petering out while playing a breakout or breakdown from a key level. The internals should be confirming the instrument’s progress.

We will emphasize these principles over and over in the new trading room – currently in beta test.

A.F. Thornton

Navigator™ Signals for Day Traders

Morning Outlook – 4/22/2021

AF Thornton 0 Comment

It is hard to believe that we are almost through another week. 

Yesterday saw buyers recapture control, at least temporarily, but not to the level that we formed a full pivot higher on the daily chart. This morning will be a flat opening just inside yesterday’s range – in other words, balance. Overnight distribution is small and wide in the context of yesterday’s trending day higher. For now, overnight traders are accepting the higher prices associated with yesterday’s close.

The halfback at 4142.50 is my key line in the sand today for bull/bear bias. Buyers need to hold this halfway point in yesterday’s range. If they can hold above the overnight high at 4167.25 (also near yesterday’s high), so much the better. As a side note, halfbacks become important when there is a wide daily range, especially on a trending day supported by strong internals, such as yesterday.

On the upside, we have the overnight high and yesterday’s high at about the same level. That’s a visual and mechanical breakout point for many traders. Monitor for continuation on any break above there.

Do not be surprised if the market stays balanced and trades inside yesterday’s range today. As mentioned yesterday, we have tagged the expected move on the downside for the S&P 500, so that likely puts a floor underneath the market until options expiration tomorrow. Use the internals to guide you in this regard. Anemic ticks and an S&P 500 A/D line between -100 and +100 will be more supportive of balance than trend.

Acceptance of prices below yesterday’s halfback would change the tone back to negative, in my view. We are still holding Gold in the Swing Strategy, but my finger is on the trigger.

Good luck today.

A.F. Thornton

Navigator™ Signals for Day Traders

Morning Outlook – Update 4/21/2021

AF Thornton 0 Comment

Market internals have been powerful today, supporting each break higher and past overnight highs. I will publish an illustration later. This is nearly a textbook day to illustrate how strong internals support breaks to higher levels. The NASDAQ 100 pattern is analogous to the S&P 500, but a bit weaker.

We will see if the afternoon drive (that should start in the next 15 minutes) can support breaks above yesterday’s highs. There is a better chance on the S&P 500 than the NASDAQ 100. If such a break does occur, we may have a pivot that could finish this leg from March 24th with a double top or possibly slight new highs. We nearly tagged the low end of the weekly expected move already, so the downside might be contained for now. 

As demonstrated in the chart published in this morning’s writing, price action might carry us into the May 8th topping zone, which I have identified as the “ideal” position for the 18-month cycle peak. “Ideal” is in quotes because it is rare that the markets deliver much that is ideal or to our precise liking. But as with horseshoes and hand grenades, close is good enough.

I am unsure that our gold position would buck a significant stock market downtrend – though I try to keep an open mind. I am trying to decide whether to nail our substantial profits at the close today so stay tuned.

A.F. Thornton

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