Founder's Trading Journal 0 Comment Door Number One... S&P 500 Index Futures Daily Chart - Reversal Up? Door Number Two... S&P 500 Index Futures Daily Chart - or Reversal Down? Good Morning:Balance Rules will be tested this morning, as yesterday’s decisive rejection of the 3975 Price resistance disappointed the bulls. For our flagship trading index, the S&P 500, the Balance Range is roughly 100 points between 3800 and 3900.The top of the Balance Range is 3912. Our risk today is that when price breaks out as yesterday and then falls back into the Balance Range, it typically goes right back to the lower end of balance (3800). See Balance Rules.But the Daily Mean and/or FIve-Day Stop Line could catch any fall into 3895. And that leaves us with a bit of a opportunity. We have a simultaneous break-out retest of of the Balance Range high around 3912, and both Mean and Stop Line tests just below 3900. Will buyers show up on these pullbacks?The Founders’ Group views this zone between 3895 and 3912 as a low, risk to stop entry zone, even though failure at the zone calls for a 100-point sell-off. The key is the right stop to prevent joining the full decline if the tests fail.. So the Founders’ Group will add to the Navigator Swing long position if price reaches the entry zone, setting a one or two ATR entry stop. We won’t lose very much if the trade fails, and we could take the failure as a short signal with the aforementioned 3800 target.As planned yesterday, the Founders’ Group scaled back to a runner (small position) for the swing strategy when price reached 3975. We will handle the runner the same way we handle adding to the existing long position in the buy target zone. If our stop triggers, it triggers on the entire position and we can either short or go to cash.If the Balance Range holds, price will likely test 3975 above one more time. If that level is conquered, price can potentially reach up to 4025, a 2.618 extension of this rally’s seed wave. Given that the Balance Range is 100 points, a successful retest projects a 100 point measured move up to 4012.On the down side, If 3800 is realized, the topping pattern identified yesterday morning takes form and the bears have an edge. See the Door Number Two second chart above. The topping pattern’s measured move down is 200 points or more, and likely the October 2022 low (3502). If some doomsayers are correct, it could get even worse.Recall that from an Elliott wave perspective, the bears still argue that we are in a draconian “3” Wave down. S&P 500 Cash Index - Current Elliott Wave Count. Source: Daneric Elliott Wave The bear case lines up with the anticipated cycle lows slated for February, and perhaps forms a double bottom with last October. On the other hand, the rally leg we are in now could peak high enough that the February cycle low comes in higher than October.And so, relatively little has changed since mid-December. Look for resistance at 3912, 3975, then 4000. Support is at 3850, 3815, and 3775.Our first potential reversal date on the year is Thursday – January 12th. As always, the direction of the turn depends on whether price rises or falls into the date. S&P 500 Cash Index - Potential Turn Dates - Favor the Turn Dates over Price Amplitude. Source: @fiorente2 As for this week’s remaining catalysts, the Consumer Inflation Report comes out on the morning of our Thursday turn date. Friday’s action will see release of the University of Michigan Consumer Confidence Report. U of M will also release its inflation survey Friday.With such important reports looming, we may not see the price trend until the reports are behind us. And lest we forget, 4th Quarter 2022 company earnings fun starts next Week.Today is the last day I will be in the Trading Room as I have several days of travel ahead. For now, the Navigator Swing Buy signal is holding and we will follow the plan above, subject to new information or intervening events.As always, do your own homework as our approach and decisions may not fit your circumstances. We accept no responsibility for your decisions. Keep in mind that we make a lot of interim decisions between these writings that may not be timely communicated in this Blog to non-subscribers.A.F. Thornton
Founder's Trading Journal 0 Comment This is a multi-year composite of Dow Industrials 4th Quarter data from 1885 showing the typical December pattern. I would assign a 65% probability to this outcome. Good Morning:Well, dear, not exactly. it is a good thing we went back to cash yesterday with a nice scalp under our belt. The hourly charts continue to be THE reliable harmonic for the current tape.And the price action (pre-market) dovetails with the path forecasted in chart above, which shows the seasonal tendency for December. There is a 65% probability we peak about now and dip into mid-month. That times with the Fed rate announcement and monthly options expiration.And so, in our final data point this week, the November jobs report this morning blew out the consensus number at 200,000 new jobs, coming in at 263,000. Of course, we still have to analyze how much the Orwell Administration cooked the books, as has been their habit.Needless to say, recession hungry Miss Market is not happy! This is one of those “hot” prints feared and discussed as a risk earlier this week.As a side note, average hourly earnings were up, but not enough to keep up with inflation. And the average work week is hovering around 34 hours. Where the hell are we, Europe?Back to the market, resistance remains at a band above from 4100 – 4110 (the SPX Call Wall + the SPY 410 Call Wall). There is resistance above there at 4126.Still, mark any SPX move >4110 as overbought.Support shows at 4050-4055 (SPY 405), then 4000.Given where we are, we vote for the typical December pattern in the chart above, with must-hold support at 4000 for any bull case to remain alive. S&P 500 Index - Daily Chart Cycle Analysis There is a lot not to like about this latest rally leg. It is wide and disjointed compared to the rallies earlier this year.And we have now completed our three pushes-up in the bearish rising wedge pattern.There are lots of negative divergences in the pattern. And accumulation lacks the strength of the previous run-ups.And the volume on the explosive up day Wednesday looks like a spikey peak.On the positive side, if the foldback marked in the chart above crosses above the August 16 high, I expect the S&P 500 to move into the crest of the foldback. Measured moves may indicate a potential target price/time area but are certainly not guaranteed.Also. the accumulation indicator (lower chart) suggests that accumulation lags compared to early swings.Bullish investors could try to buy the 4000 area on this dip but keep your stop tight.Otherwise, it might be best to look for an entry in mid-December.As always, stay tuned, and have a great weekend.A.F. Thornton
Founder's Trading Journal Interim Update – 10/25/2022 Oct 25, 2022 Brent Stockton 0 Comment Good Morning:Futures were quiet overnight, holding 3800. Key levels from yesterday are little changed. Price will encounter resistance at 3800, 3824, and 3851. Support shows at 3756, then 3700. Reread yesterday’s update for context.Traders need to get on board with longer-dated calls to support this rally, especially as short-term sentiment indicators have moved back to neutral. Volatility is starting to subside, a bullish signal for markets as the contraction invokes a Vanna tailwind.But there is little between 3800 and 3700 to support prices if they slide, and there is the potential of a right shoulder dip, as discussed yesterday. Then the rally could resume in earnest, and I would put 4100-4150 as an objective.But a little FOMO fever is developing as the trend-following CTA community flips to buy signals between 3800 and 3900. Also, stock buybacks continue next week.Global tensions could be the catalyst for any scary dip south. Otherwise, this rally leg should top in early December if the bear is to resume.And don’t forget that the Fed meets and will announce interest rate policy on November 2nd, with the midterm elections a week later. That could be the turn after a right shoulder dip.I will be in the Founder’s Room later this morning. A.F. Thornton