All posts by AF Thornton

Founder's Trading Journal

Buy Signal

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I thought I would be able to watch the election strife this morning, but alas there is no rest these days. The algorithms flipped a buy signal at 3728.50 on the S&P 500 index, which we communicated to the Founders group first and are now publishing. The signal can also be executed on the NASDAQ 100, which is running a bit behind the S&P 500 this morning. We will be using the 5-day Exponential Moving average as our stop as usual, just in case the rally fails to hold. More on this later today.

Founder's Trading Journal

1/6/2021 Pre-Market

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Navigator Algorithms – 100% Cash

早上好

Translated, that means good morning in Mandarin. Of course, I am just kidding, Comrades, but given last night’s Georgia Senate election results, I wonder if we should learn to read and write Mandarin. Through the Chinese Progressive Association, much Chinese money went into the Democrat Georgia races and Stacy Abrams’ voter registration efforts. Trevor Louden does the best job in the country of tracking the Chinese money, and you can judge for yourself in his latest interview with American Thought Leaders here.

What a tangled web the Covid-19 virus has woven. From capitalism to socialism in less than a year. Let’s see what all of this brings us in the real world.

I think last night’s apparent sweep by the Democrats of the Georgia senate seats promises to elevate the importance of the Biden Electoral College certification today. I fully expect Biden to be seated, but who can really be sure of anything in these Covid-19 times. Rumors abound of a big reveal today by the Trump administration. It has become difficult to separate fantasy from reality these days – but I will keep an open mind.

As to the stock market, yesterday’s prescription applies to today as well – so I don’t have a lot more to say on the technical details and encourage you to review yesterday’s pre-market discussion. 

Following yesterday’s pre-market script, the S&P 500 index rejected lower prices but did not convincingly reconquer 3700. In an interesting twist, the overnight stock futures action looks almost identical to yesterday’s action. The overnight Globex S&P 500 Index futures briefly looked above yesterday’s high of 3717.50 but handily rejected the higher price. At this writing this morning, we are looking to open in the middle of yesterday’s S&P 500 range at 3709, just slightly above 3700 and down about 11 points from the close. 

On a positive note, the Dow Jones Industrial Average futures are positive by about 33 points, and the Russell 2000 is slated to open up 2.7%. Yet the NASDAQ 100 and monsters of tech are decidedly negative this morning, down 1.43%. This indicates rotation – in addition to some selling pressure. Rotation is good – a correction only gets draconian when broad-based selling kicks in.

Yet, I led with the chart of the 10-year US Treasury yields above for a reason. As you will see, interest rates are gapping higher this morning. While the yields are still meager, the yield gapped 7 basis points, well above the key 1% level this morning. In percentage terms, that is an overnight jump of 7% in the yield, hammering treasury bond prices this morning. The interest rate trend is what matters, and this jump in rates is both alarming and telling. We had better keep a close eye on this.

Rates matter – plain and simple. When our country had $4 trillion in debt, the annual interest was about $500 billion. We have $20 trillion in debt, but the annual interest is about the same because rates dropped significantly over the past few years. It does not take a math wizard to figure out what happens if rates rise. Tick by tick, the deficit spins out of control.

The election results last night give us a one-party rule in Washington. Generally, markets like divided government. However, in this unique case, Democrats seemingly favor the globalist agenda, which may be just fine with Wall Street’s equity side – at least in the short-term. 

Wall Street cares about profits more than any domestic socialist agenda. In fact, they would sell us down the river for a buck. That is the dark side of capitalism. Other than some portfolio shuffling to align with the Democrat agenda, I do not see the election results or seating a Biden administration as immediately negative for the financial markets – already in the midst of a correction of sorts. In fact, Democrat, one-party rule could even be a net positive once portfolio managers make their adjustments. Democrats are globalists – and Wall Street loves globalism.

I will have a lot more to say in the upcoming 2021 video. Still, I want to see how the day goes in Washington DC with the Electoral College certification before publishing and finalizing it.

Let me at least tease you with this one tip I will cover in detail in the video. I am calling it my Guns and Gold strategy. One of the most important things you can do this year is to buy small denomination gold and silver coins. Having an independent, non-tracked currency will be very important in the future. If Defund the Police takes hold nationally, make sure you have a gun too. 

We are about to see rapid change, and not all of it good. I have some difficulty assessing timing, so the sooner you can start accumulating coins, the better.

Gold prices may or may not skyrocket, as Central Banks around the world will work to keep precious metals prices down until they are ready to reset into a non-cash system with digital currencies. My recommendation is not so much a play on gold or silver prices – though I believe both metals are undervalued. They may or may not rise short term, which makes accumulation easier. This is more about maintaining your independence in a rapidly changing world.

As always, stay tuned. Share this with your friends and family. Forewarned is forearmed.

AF Thornton

Founder's Trading Journal

1/5/2021 Pre-Market

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Navigator Algorithms – 100% Cash

Pre-Market Outlook

Translation

We thought the market was too high, so we took all our profits in December and had been waiting to buy stocks when they went back on sale again in a correction. There were just too many dumb people excited about the market to make us comfortable.

The stock market looks like it is finally coming back down to earth, selling off a bit yesterday. It is a bad omen to have such a lousy day in the markets on the first day of the New Year, but so be it. Let’s face it; there is always something to worry about.

We think the market might sell off some more, and there might be some good deals out there on our favorite names when it settles down. So we are not going to be the first back in.

Let’s give the market some time to convince us that the correction is over. Then we can deploy our cash and repurchase everything cheaper. The elections and certification over the next few days could also influence the mix we would want in a 2021 portfolio. The 3600 level on the S&P 500 index looks like a good level to target for now – but we need to stay flexible.

Navigator Core Algorithm Status

ETH Daily ES - Where We Are

We went into the first trading day of the year yesterday in a 100% cash position, having identified and acted upon risks associated with the rising index wedge patterns, momentum divergences, and various breadth indicators. Additionally, broad investor sentiment indicated a frothy market with significant attendant risks as the Dumb Money Confidence Index remained stubbornly high into year-end. We had also been in cash for several weeks, operating on an early Navigator sell alert in December and allowing me a few days on the sidelines for a year-end vacation.

After a vicious sell-off yesterday right to the mean on attendant high volume, the daily trend is now neutral to negative. The Navigator Algo dashboard (appearing above) indicates that the uptrend is stalling, price strength is waning, and all stop triggers remain in short mode. It would take a close above 3723 to initiate short-covering (or long entries) at a minimum. 

Yesterday, after briefly tagging an all-time high at 3773, the S&P 500 index nose-dived into support at the half-roundie (3650), then flipped higher to close at 3696, slightly above the mean (3684), trendline support (3684), and the Weekly Expected Move low (3673).

Also, keep in mind that all of this price action rejects the megaphone top channel lines we had been keeping our eye on over the past few months.

ETH Daily ES - Where We are Headed

Normally, the Weekly Expected Move low at 3673 should contain the damage for the full week, as options market makers defend the price ahead of this Friday’s weekly options expiration. If the low is materially breached, the selling will accelerate as the options market makers are forced to sell futures to neutralize their portfolio deltas. So today will decide whether yesterday’s sell-off was another “weak hand” minor liquidation break or the start of an intermediate correction. I tend to favor the latter interpretation, but we will let the market tell us in the next few sessions.

In the daily time frame, the key issue today will be whether the mean will hold at the 21-EMA, retest yesterday’s low, and/or continue below the mean to further support at the 50-day SMA. Notably, the daily price mean shares an approximate coincident low with the Weekly Expected Move low at 3673. In a veritable sign of weakness, the S&P 500 moved right to the Weekly Expected Move low on a Monday on the very first trading day of the year, eating up the entirety of its 84 point downside range.

Cyclically, yesterday’s price action breached the nominal 20 and 40-day FLDs, indicating that a nominal 80-day cycle reset likely is underway, and we are slightly more than halfway to a projected minimum low around 3600.

RTH 30-min ES

The 30-min ES is trading below the mean, with a buy-stop around 3695. Until that changes, it will likely be advisable to look for short-trades from the mean, using the 5-minute chart for entries and exits. In other words, follow the 30-min short from its mean at least until a test of yesterday’s low is resolved. We do the opposite if the 30-min can join the daily price chart and climb above its mean.

Narrative

Dominant market themes include a vaccination supported, broader-based economic recovery now supported by the stimulus package. We remain in the strong seasonal strength period for stocks, which occurs from October through April. Tech profits continue to be rotated into prior, underperforming sectors. Although Congress recently took some of the punchbowls away from the Fed in main street lending, Fed policy remains favorable. 

Election issues loom, still seeming to favor seating the Biden administration. Critically, however, markets like divided government. If the Democrat party gets full control of the government with today’s Georgia Senate races, the market will need to adjust to a projected scenario of higher taxes and regulation. Perhaps that realignment has already started with this market hiccup right out of the gate for 2021.

Investor sentiment remains a concern. Excessive optimism abounds as manifested in record margin debt, confidence surveys, options speculation, stocks vs. GDP, and record IPO issuance. 

The frothy sentiment exposes weaker hands, keeping the index vulnerable to almost daily news liquidation breaks – and that may be all this early January sell-off is/was. Yesterday’s negative price action did little to move the sentiment needle. There is some solace in the CNN Fear/Greed index returning to neutral at 52. The Put/Call ratio closed at .60, in the upper end of its recent range, but not yet demonstrating an extreme level of fear.

In an astounding move, the New York Stock Exchange decided late yesterday to defy President Trump’s recent executive order. They are now refusing to delist three Chinese telecom companies associated with the Chinese Communist Party, the Chinese Military, and Chinese Intelligence. Besides their nefarious affiliations, these companies shield their finances and do not comply with listed company audit rules.

Comrades, this is not a positive development. Given the CCP’s broad and growing influence in the U.S., We may all need to brush up on our Mandarin. Oh, and did I mention that President XI put the Chinese military on alert for war yesterday? Let’s hope this is related to the 100th anniversary of the Chinese Communist Party and not anything less desirable.

 

Volume Profiles

As identified yesterday, the key day-trading issue would be whether traders will accept auction prices above the three-day balance area high of 3750. When prices looked above and rejected, the price drifted back to the balance area low. Yesterday, the balance area low was around 3714.

I had also identified the vulnerable gap area between 3714 and 3700 in several past writings. Generally, prices move fast through gap areas if the gap fails to provide support. A rapid fall through the gap area also manifested yesterday. 

We are now back into December’s balance area range between 3623 and 3700 or so. The 10-day Point of Control (volume at price) peaks out at 3694 and tapers off from there almost symmetrically in both directions. The value area high is approximately 3700, with the value area low at 3650. Think of those two levels now as the battle lines for day-traders. 

These battle lines are not atypical. The S&P 500 index, from the most basic, macro perspective, tends to migrate in 50-point increments using the 50 (e.g., 3650) and 100 (e.g., 3700) handles as battle zones in its travels north and south. 

Key Economic Reports

Yesterday saw reports confirming construction spending a bit higher, but in line with expectations. Today, ISM Manufacturing’s Purchasing Managers Index will be reported. The forecast is for the index to come in down slightly from last month but still at a positive 56.6. The OPEC meeting today could also exert some influence on the markets. 

Morning Plan

Overnight inventory is balanced to slightly net long, and we are slated to gap down (not a true gap) and open in the third quartile of yesterday’s range, also at the 10-day Volume Point of Control. Accordingly, there is not much market-generated information to guide us this morning, and it will be better to trade later than earlier today. Be patient and let the market show its hand.

Yesterday’s settlement was 3692. As the Shadow Trader often phrases it – “screens go green” for everyone worldwide above the settlement. If we continue to lower finding acceptance at or below yesterday’s price low of 3652, this would likely attract more sellers. We may then move lower to the projected 3600 price target, perhaps testing the 3596 swing low from December 21st.

Any counter-trend rally with legs will have to take out the overnight high at 3705 and move aggressively into the single print areas approaching 3733. We would need to be convinced of real buying versus short-covering to trigger daily chart Algo buy signals up in this range. 

Acceptance of price back up in the range above 3714 makes the reverse of yesterday’s price action possible. Having rejected lower prices, there is the potential to move back to the top of the value area around 3750.

We often think of markets in terms of up and down trends. Yet, markets often move sideways. A quick visual of the daily S&P 500 index price chart shows a sideways trend since November, with a slight, upward tilt. Currently, the range is about 100 S&P 500 points, pegged between 3650 and 3750. With volatility contracting into a tight squeeze, a big move could lie ahead. Unfortunately, we cannot forecast which direction the move will take. If yesterday is any indication, down appears more likely than up.

Either way, we will stay alert and flexible.

A.F. Thornton

Founder's Trading Journal

1/4/2021 Pre-Market

AF Thornton 0 Comment

Pre-Market Outlook

Navigator Core Algorithm Status

ETH Daily ES

The daily trend is up, trading above the mean but tucked into a rising wedge corner visible on the daily and weekly charts. The market will try to hold 3750 this morning and the pattern likely completes a “5th” wave up from the March lows. We are looking at a total WEM range of 165 points for the week, and 50 points for the day.

We have been in a balance area for four days (see the profiles below). If we continue northward and find acceptance above the range, the first upper K-band is around the 3780 level with the second and WEM Hi sitting at 3840 or so.

Notably, a gap to new all-time highs this morning would be a yearly, monthly, weekly, and daily gap on the chart, something that likely has never presented before.

RTH 30-min ES

The trend is up with a true gap open. Gap rules are in play. We are going to open pushing the outside of the upper channel but from a flat band position. 

Narrative

Dominant market themes include a vaccination supported, broader-based economic recovery now supported by the stimulus package. We remain in the strongest seasonal strength period for stocks, which occurs from October through April. Tech profits continue to be rotated into prior, underperforming sectors. Although Congress recently took some of the punchbowls away from the Fed in terms of main street lending, Fed policy remains favorable. Election issues loom large this week but seemingly favor seating the Biden administration.

Investor sentiment remains a concern. Though excessive optimism has tapered a bit, as reflected in the CNN survey below. But record margin debt, confidence surveys, options speculation, stocks vs. GDP, and record IPO issuance remain at warning levels. The frothy sentiment exposes weaker hands, keeping the index vulnerable to almost daily news liquidation breaks.

Stops are more critical than normal in this environment. Make sure all your trend lines are up to date with the liquidation breaks.

Today's Key Levels

The ONH at 3772.75, the RTH / Balance Area High at 3753 and the Balance Area Low and top of gap at 3714.50 are the key levels to watch this morning as the market travels our usual quintet, consisting of last Thursday’s high and low, the overnight high and low and the cash open.

Volume Profiles

Key Economic Reports

Fed governors Evans, Bostic and Mester speak today, otherwise all eyes are on the election.

Morning Plan

The first potential on any large, true gap is always the potential for fill. But this morning balance rules apply as well.

This morning’s gap represents a look above the four-day balance area. We have the framework of balance rules to guide us.

Overnight inventory is net long but not 100% so. We are well off of the overnight high already which can often take some wind out of the sails of those ready to fade the bell.

Structure on the strong close on Thursday was quite poor and should be noted. The POC did not move higher and remained near the lows. The rallies left a lot of single prints which is more emotional and less sustainable buying, and more likely short-covering.

Founder's Trading Journal

The Four Most Dangerous Words…

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Navigator Algorithms – 100% Cash

Welcome to 2021, and a week that is sure to be interesting.

The subject at hand, however, is “the four most dangerous words in the investment business.” Any gray-haired investment professional will tell you that those words are “this time it’s different.” Perhaps a corollary statement is that the main lesson of history is that people never learn history lessons.

Our debt problems (and inflating the currency to bail out of them) promises to be the key 2021 theme. It is the issue that has the greatest potential to take the country down. We are at risk of losing the US Dollar’s reserve currency status in due time. No country in world history has maintained its reserve currency status for more than three or four generations. Note what happened to the British Pound post the Great Depression, World War II, and the last major monetary reset. The US Dollar overtook the British Pound as the world reserve currency. 

Yet, we seem inclined to make the same mistakes as the Brits and the Dutch before them. A nation with the ability, much less the fortitude, to tax its citizens would not be $20 trillion in debt. There is no tax base now, nor will there ever be, to pay back this debt. 

Heaven forbid what will happen if interest rates begin to rise. The only way out for any government in such a predicament, as history teaches, is inflation. Inflation will not be a pretty picture for any average citizen of any country. Moreover, as the Global Monetary Reset begins to take shape, the necessary currency adjustments to convert to digital currencies promise to be brutal to the average worker. Unfortunately, the picture is somewhat dystopian and promises another major wealth transfer from the poor to the rich. Naturally, it is being sold as the opposite.

I am covering all of this and more in my 2021 outlook video. I will issue the final version after the Georgia Senate elections and after the Congressional Electoral College certification is resolved this week. The outcome of these events will significantly alter my views – though the outcome seems to favor the Democrats at the moment.

The Navigator Algorithms are coming into the first week of 2021 in cash, after an 896% return in 2020. The two primary indexes – the S&P 500 and the Nasdaq 100 – are tucked up into the corner of rising wedge patterns. This pattern tends to lead and end trends. In the “daily” and “weekly” chart contexts, we are likely ending the first phase of the rally trend from the March lows.

Don’t get me wrong; I believe that we are still in a liquidity-driven bull market, and there is still time to prepare for what lies ahead. If Biden is seated and Janet Yellen takes the helm at the U.S. Treasury – you can be sure that the liquidity firehose will be doubled and tripled, and that will boost asset prices short-term.

For now, though, the rising wedge pattern usually leads us into a normal correction that retraces up to a third or so of the prior advance. Given the liquidity in the markets, the correction may be more subdued than normal, but it will present in some form. This normal (and healthy) correction is what I expect to unfold beginning in the next week or two. If not, we will find our way back into the market with the next Navigator Algorithm buy signals.

In the meantime, this is a time to begin to batten down the hatches. The storm brewing is likely 12 to18-months out, but everything seems to accelerate more rapidly these days. We have the nominal 80-day cycle topping in the current time frame, with some larger cycles topping in the spring. The market could pounce on any of these cycles to begin digesting the Great Reset. I can be relatively certain of the outcome, but the timing is more difficult to predict. 

Make no mistake, the outcome I am expecting is unpleasant; at least if the wealth you have accumulated is left unprotected. Properly positioned, you can stay with the top 2% of the country whose wealth will thrive and survive.

You really have two choices. You can prepare for what lies ahead, protect yourself, and maybe even benefit. Or, you can be wiped out along with a lot of other innocent and uninformed people. I am not telling you anything you probably don’t already feel in your gut. But there is enough runway in front of us that there is time to get prepared.

More to follow in the video later this week…

A.F. Thornton

Founder's Trading Journal

The Week Ahead

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Navigator Algorithms - 100% Cash

For Once – Some Plain English

If the stock market does not make sense to you, it likely boils down to synchronicity. The stock market anticipates the future, so it rises when the present seems awful. Then, when everything looks fine again, the stock market pulls back into a correction. It seems maddening to the average person, but stock market performance results from the time horizons of a myriad of traders and investors. 

Long-term investors keep the needle generally pointed north. Short-term traders give us the ebbs and flow along that path. Generally, corrections of 10% or less arrive courtesy of the short-term traders. When a correction begins to exceed 10%, long-term investors are likely becoming nervous and beginning to sell as well. 

Long-term investors tend to stay the course, excepting the most exigent of circumstances. When long-term investors head for the exits, corrections carve much deeper as we saw in March. If the long-term crowd becomes despondent, we experience challenging bear markets or consolidation periods that take many years to resolve (e.g., 2000 – 2009).

To make matters more complicated, the government has tended to get involved in recent years when the entire universe of investors sour on the markets. There are times, such as March, when every investor wants to sell simultaneously, and nobody wants to buy. The government, through the Federal Reserve, steps in to help cushion the blow. Then you end up with a rational market (as investors sort through the issues at hand) with an artificial element, as the Federal Reserve influences rational investor behavior and thinking. 

As the year closes, we can observe that the stock market has recovered significantly since the March crash. To some extent, the comeback has been artificially induced by government policies. Yet, the recovery is also quite real. Company earnings have improved from their worst levels.

Lately, investors have been taking profits in leading stocks that were the first to rise after the crash. These stocks benefited from people staying at home (e.g., Amazon). The good news is that investors, rather than hoarding their profits, have reinvested them in more traditional, economically sensitive companies that will benefit as the economy expands again in a post-vaccine environment (e.g., Caterpillar and Chevron). When I refer to “breadth” in our more technical discussions, I am identifying that a broader group of companies are beginning to attract investors rather than just a small group of tech names. The market rally becomes healthier and more sustainable when it broadens out and becomes more inclusive.

At this writing, the stock market is sputtering a bit. Partly, we see indications that the short-term crowd is fully invested, possibly lacking additional funds to carry the market much higher, at least in the short-term. More lockdowns,  a more contagious virus, and a rather slow rollout of a yet unproven vaccine has put a temporary damper on the narrative of the traditional economy recovering as soon as we would like to see. Government policies continue to favor the bull market, so while a correction may be underway shortly, the overall bull trend is likely to remain intact.

It bears mentioning that the contentious political environment at hand also negatively impacts investors, not to mention business and consumer optimism. The prickly environment remains a risk and could cause the market’s ebbs and flow to become more volatile. 

The general public feels fleeced – both by the 2007-2009 Financial Crisis and now the Pandemic. A significant portion of the American public does not benefit from the stock market or real estate investments. All they see are corrupt politicians and Wall Street bankers living large, with no consequences or accountability for the ravages they have sewn, negatively impacting normal, hard-working Americans. The latest Stimulus bill, loaded with pork and favoring billions in foreign aid over a pittance for suffering Americans, has poured gasoline on this fire. As an example, $14 million to study the effects of Transgenderism in Pakistan? Really? Is this our government’s priority with so many Americans suffering, losing their jobs and businesses?

Some of the disgruntled Americans end up on the left as so-called “Bernie” supporters. Some of them end up on the right as the so-called “Deplorables” or Trump supporters. It would be a scary day in Washington, D.C., if both of these groups ever got together, united by their common disdain for the current ruling class, and recalled every Congressman and Senator currently in office. Anyway, one can only dream, right?

If there is a risk at hand, something that might arise unexpectedly as a so-called “Black Swan” event, the genesis might very well be rooted in the public’s discontent with the malevolence currently masquerading as our government. This theme will carry forward into 2021 – and it contributes a certain dissonance to the most optimistic of forecasts.

So, where does that leave us for the week ahead? A final stimulus package, especially if it includes a $2,000 payment rather than $600, could give us one last thrust to new stock market highs even before year-end. Then I believe that a 5% to 10% broad, profit-taking correction will get underway early in the year.

I will have more to say about the year ahead and some exciting announcements in a few days.

At this writing, the core Navigator Algorithm model is up 896% year to date. It is the best year I have ever experienced as an advisor. I am glad you had the opportunity to experience it with me, and I hope these writings have been helpful.

I wish you a Happy New Year – and I intend it to be a profitable one for all of us!

A.F. Thornton – 12/27/2021

Founder's Trading Journal

What Happened to Santa? Did the Covid Nazis Cancel the Santa Claus Rally Too?

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Navigator Algorithms – 100% Cash

A week ago today, we were back to cash after a beautiful buy signal and small profit off the 21-day line on the previous Friday’s S&P 500 index. With our year-to-date returns solidly north of 800% (an 8-bagger for the year as it is affectionately referenced in trading jargon) – there was no incentive to play around when the market failed to follow-through on the bounce.

But the market gyrated the rest of the week right through to Friday’s last half-hour close – eeking out a small gain. From Tesla’s inclusion into the S&P 500 index to all the year-end shuffling, even I thought the S&P 500 Futures would hold 3700 and the Dow 30,000.

After all, Santa Claus is slated to arrive for his year-end rally around December 15th or so, and what could be better than a boost from a Stimulus package, finally reached in Congress Sunday and slated to pass some time today?

Then I remembered, this is the year from hell. Nothing is what it seems or what it was. Given the equal opportunity dream killer that the market can be, what would be the best way to fool this giddy crowd right before Christmas? Voila, I wake up to the S&P 500 futures parachuting into a low volume pocket, hitting the ground at 3600. That is about 1,000 Dow points off the peak in Globex at the open Sunday night.

Granted, it is 4:00 am here in the mountains, and New York does not open for another 3.5 hours. But a cruel, downside gap appears to be awaiting the longs at morning coffee. Needless to say, I am happy we are in the audience seats, popcorn in hand, to watch this unfold. At the same time, we must also be alert for the buy, as the market has breached the mean at the 21-day line, leading us further south for the winter.

Once again, I am reminded how much smarter the Navigator Algorithms are than I am, having painted double sell alerts – warning of the market’s potential, short-term demise. The yellow down arrows on the chart below are the alerts painted, with that prominent engulfing red candle at the end showing the overnight action at this writing.

I also want to pay homage to the dumb money – that Robinhood App crowd. We need each other. Who else would feed us these wonderful profits all year? When they zig, it is best to zag and vice versa. The more new traders, the merrier. Apparently, there are 14 million of them, and we are happy to take their money. This is a zero-sum game, after all.

So, where does that leave us, and what does this sell-off mean? Is this the end of the bull? Will we revisit the bottom of the megaphone pattern from this top at Mount Everest? Are we facing the second coming of the toilet paper crisis?

Funny you should ask. Rather than focusing on my usual homework, I spent the weekend preparing my 2021 forecast. You will find it quite interesting. The theme centers around the idea that 10-years of the digital revolution have been compacted into a year, and the implications for trading, investing, and life, in general, are profound.

For now, we could blame this decline on the new lockdowns, the new strain of the virus, the election, and all manner of bad things. However, at the end of the day, there is always something to tag for a rally or decline in the markets. And perhaps the Stimulus passing later today will be the catalyst for a turn back to the north.

For now, the chart above is enough of an explanation for me. The Dumb Money has been giddy while the smart money had already headed for Christmas vacation. Once again, I am reminded of that famous quote from my mother when she didn’t like one of my friends – “tell me who you walk with, and I’ll tell you who you are.”

The 2021 forecast video will be out by the end of this week. In the meantime, be on alert for a buy signal.

AF Thornton

Founder's Trading Journal

Down and Out

AF Thornton 0 Comment

Navigator Algorithms – 100% Cash

We are out of the market and back to cash. Yesterday’s dramatic reversal from the morning gap higher was beyond disappointing. And it is not much of a holiday when I have to keep returning to these pages.

Yesterday, I noticed that Joe Biden was voted in by the Electoral College. For the most part, I found that no worse than the shock when I woke up from a coma in July and Donald Trump was President. I am still not entirely certain I am awake or that this is not an alternate universe. The next thing you know, we will be embracing communism. But the “Great Reset” requires a separate discussion. Fourth Turnings are just that miserable, and I wish I could skip the next 10 years or so. Rest assured, the 2030’s promise to be much better if we can make it that far.

So we caught a Navigator Algorithm buy signal in the markets on Friday. Our trade location was fabulous. Yesterday morning I looked like a genius. Always beware when you begin to feel like a genius in trading. It may mean you are about to get your head handed to you.

After blasting out of the gate to a 30-point gap and gain yesterday, the market sold off for the rest of the day. Fortunately, we had moved our stop up from Friday, and we had a small gain on the signal. It is hard to complain, with our returns north of 800% for the year. It is only the second time that we have been stopped out close to a buy signal.

So, what does the market’s behavior yesterday portend? Certainly, the WWSHD signal comes to mind – When What Should Happen Doesn’t. Many traders and investors forget this important signal – hinting that you should reverse course – a significant directional clue in and of itself. More likely, it may simply be that tax-loss selling is not yet complete. Tax loss selling is the typical pastime for money-managers going into mid-December.

If anything is truly ailing the markets, a Stimulus bill could give it a shot in the arm, at least temporarily. At the moment, more lockdowns threaten first-quarter GDP. Sentiment remains giddy, and the Dumb Money Confidence, barely off its all time high, continues to cast a shadow over the bulls. Maybe the pros wanted to sling a few arrows at the idiots yesterday – ouch! Who knows for sure?

The market is faring better this morning. But “fool me once, etc.” comes to mind. Our Asian and European friends, apparently unconcerned with U.S. taxes (or elections), were definitely buying last night

And that brings us back to the Santa Claus rally and our projection back a few months that the S&P 500 could eventually tag 4000 if it could break the Megaphone pattern topline. The “breaking process” is still underway (see below), if such a break is really possible. I cannot yet report that the Megaphone topline is in our rear-view mirror.

Maybe the best news is that Santa Claus is slated to arrive any time after tomorrow. As we saw yesterday, money managers are reshuffling their decks. The end of the calendar quarter, just like the end of the year, is an adventure in window dressing – which often triumphs logic.

Stepping out of the weeds (5-minute charts) just for a moment, I look to the right side of the weekly S&P 500 Futures chart above, and it bears some resemblance to a cliff. Again yesterday, someone fell off a cliff having their picture taken. Nice view, right? It happens more often than you think.

Then I ask myself, what if the crowd’s unbridled optimism is dead wrong? What if Santa skips this year due to his own Covid-19 fears? What if the market already reflects the most optimistic case – buy the rumor sell the news kind of logic?

Let me say this about that – I am not posing for pictures any time soon.

As always, stay tuned, and my next writing should be Sunday…

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