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Founder's Trading Journal

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Founder's Trading Journal

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Founder's Trading Journal

Pigs Get Fat – Hogs Get Slaughtered

Jan 30, 2024 AF Thornton 0 Comment

Good Afternoon:

— The S&P 500, our principal investment vehicle, can easily ride higher on tech earnings this afternoon and the Fed’s decision to hold the Fed Funds rate steady tomorrow.

— Nevertheless, we have chosen to sell the last 25% of our positions acquired a few weeks ago at 4775 for 4951.50 today.

— We already discussed a mixed bag of internal weaknesses and inconsistencies in the last few blogs. The market is approaching the top of its ATR channel at 3 ATR – overbought by most measures. And a loose but bearish rising wedge pattern could cinch a short-term peak and pullback.

— The risk/reward ratio is simply unfavorable to long positions. But we would not short the market quite yet either.

— We will stay neutral at 100% cash for now.

— The next few days will be interesting, with major tech companies reporting after today’s bell and the Fed decision and press conference tomorrow. As always. the past is prologue and forward guidance is the key.

A.F. Thornton

Founder's Trading Journal

Reducing Positions

Jan 25, 2024 AF Thornton 0 Comment

Good Morning:

— We sold another 50% of our recent position, 25% this morning at 4925.50, and another 25% at 4924.50 just a few minutes ago. That leaves us with a remaining 25% of the position we acquired at 4775 a little over a week ago.

— Our indicators continue to show some internal weakness. We tagged the rising 5-Day line pre-market this morning at 4880 and bounced before we put out our forecast. And the market reached down to 4895.50 after that, just above the 4895.25 stop set this morning. We continue to maintain the 4895.25 stop on our remaining 25%.

A.F. Thornton

Founder's Trading Journal

Mixed Signals / Taking Profits

Jan 25, 2024 AF Thornton 0 Comment

Good Morning:

— We sold 25% of our current position yesterday at 4930.25 as the market closed in on the Weekly and January Expected Move Highs set by the options market. These levels accurately cap prices most of the time for the referenced period. Accordingly, the January Expected Move High could be an obstacle to any more January gains past 4933.25. If the high is exceeded, January’s price is likely to close at or below the level by the end of the month.

— But we can count on the market to sputter around to help everyone doubt their convictions before it takes another spill like yesterday. There are many divergences and disconnected price relationships to support a dip, not to mention some pressure on interest rates and commodity prices (inflationary)

— And all the Black Swans still circle us as global tensions continue to rise.

— Without some positive light, we will continue to sell intraday rallies. And we have raised stops on our 75% remaining position to 4895.25.

A.F. Thornton

Founder's Trading Journal

Sell When You Can – Not When You Must!

Jan 24, 2024 AF Thornton 0 Comment

Good Morning:

— Our “armchair” M-Squares™ Economic Forecast operates from a simple model. As long as Junk Bond (JNK), Homebuilder (XHB), and Semi-Conductor (SMH) ETF prices confirm price advances in the S&P 500 Index, we want to be long. As long as the Dow Industrial, Transport, and Utility Index prices all confirm each other with higher prices, we are tickled pink to be long. And when the U.S. Dollar and the S&P 500 Index move in opposite directions – life is normal. Same with 10-year U.S. Treasury rates and technology stock prices opposing each other.

— What happens when these relationships shift, or send mixed signals? Generally nothing good. Since we are currently experiencing some of these mixed signals, and S&P 500 Index prices have reached the top of a potential channel line (even slated to gap open above the Daily Expected Move) we are selling 25% of our latest position at this morning’s NYSE Open, acquired when the S&P 500 Index tagged 4775 about a week ago. We will sell this first portion around 4925 (the price at this writing) for a 150-point profit into an overly enthusiastic crowd – likely to give us a little extra premium.

— The market may continue higher, at least into next week’s Fed meeting. Perhaps “Irrational Exuberance” has returned, and Artificial Intelligence is the new Dot Com. But I never worry about leaving something on the table for the next investor. Otherwise, there would be nobody left to buy, right? We retain 75% of our position though we are on pins and needles with it at this price location. Anyway, we love profits – and perfection likely isn’t possible.

— We are keeping our stops two ticks below the 5-day EMA on the remaining 25% of our position.

— As always do your own homework, but at least you know our thoughts.

Stay tuned,

A.F. Thornton

Founder's Trading Journal

Onward. Upward, or Look out Below…

Jan 23, 2024 AF Thornton 0 Comment

Good Morning:

— We are still enjoying our last swing entries at 4775, yet guarded as this market continues to rip to new all-time highs.

— And the price is, once again, well above the daily mean.

— Our investment theory focuses on mean reversion. We know it will snap back like a rubber band, but we have to know at what price and when.

— I laugh to myself sometimes at all the coding and programming we create just to predict those moments.

— There is a simplicity to this if you can get in sync with the price and meld with it.

— There is a possible measured move to 4950 from the reversal pattern we identified a few writings ago.

— Price could consolidate a few more days or even retest the breakout at 4840 before reaching higher again.

— And in the background remains the measured move from the broad, cup and handle pattern previously discussed on these pages at 5600. But that will take time – likely months.

— But 5600 is an eventual peak target should the market continue to trend higher. Of course, we could see a blow-off top reach out to that level quickly – a low-probability scenario.

— For now, make sure your stop is about two ticks below the five-day line and for sure at break-even.

A.F. Thornton

Founder's Trading Journal

New All Time Highs and Then?

Jan 19, 2024 AF Thornton 0 Comment

Good Morning:

— 2024 Market Swings are generating profitable buy/sell signals, but I would prefer less trading, especially on our Daily Strategy.

— Aggressive accounts closed the first short trade of the year (carried over from December 29th) on January 8th at 4744.50 for 83.25 points.

— The commensurate January 8th long signal closed on January 12th for 81 points at 4825.50.

— The commensurate January 12th short signal (for aggressive accounts only) closed yesterday for 50.25 points at 4775.25.

— Yesterday’s long entry has an unrealized gain of 60 points at this writing.

— This brings the YTD total points to 274.50 for traders taking both Long and Short signals. Long-only traders are up 141 points. Compare this to 49.5 points for someone simply buying and holding the S&P 500 Index.

— In futures dollars, then, our $13,775 per contract L/S gain and $7050 Long-Only gain compares favorably to $247.50 for the buy-and-hold investor. For options traders, the gains are closer to $10,331 and $5288.

— Of course, past performance doesn’t necessarily portend the future and the year is young. This gives us plenty of time for some disappointing trades before the year is up, right? And what a year 2024 promises to be! There is a 100% guarantee that nothing works 100% of the time. And we all know that if you live by the numbers you can die by them too. Still. enjoy the moment.

— The NASDAQ 100 has already moved to new all-time highs and the S&P 500 is poised to follow and finally test its all-time highs today.

— This test is unusual as today is Monthly Options Expiration. I would have predicted that the market would pin around 4800 where a huge amount of Gamma expires (4830 on the futures). It may still pin that level all day, keeping us on the edge of our chairs until Monday when the market is finally loose of the 4800ish options chain and gamma.

— Our 4800 pinning forecast earlier this week helped our confidence in going long yesterday. But 80% of breakouts fail – which might be unhelpful to the odds today.

— Big picture, however, we pointed out the Cup and Handle breakout last December 8th, and the measured move eventually takes the market to 5400 plus. And there is a Head and Shoulders reversal pattern if the market breaks to new highs in the next few sessions that points to a 4840 target.

— The time element to achieve these big-picture price milestones is less predictable. Price might need to pound at new highs above 4840 a few times in the coming sessions before advancing. The short-term pattern would then resemble an ascending triangle. And price is over-extended at the top of its over-extended trend channel. So price might need time to climb the upper channel line to achieve the targets.

— It is rare to have everything always come up roses, so let’s set stops (at minimum) around break-even plus a few points or 4780.50 to allow for the pinning behavior expected today.

— And this market is not especially healthy with barely seven stocks (the so-called Magnificent 7) carrying all the returns. Either the soldiers present an opportunity to sift through some 2nd tier names slated to catch up. Or the Magnificent 7 will lead the market down to rip through the weak structure from the October 2023 lows and repair it.

A.F. Thornton

Founder's Trading Journal

Sputtering Near the Channel Top…

Jan 17, 2024 AF Thornton 0 Comment

We closed our first long trades for 2024 for a nice profit last week. We are back to cash and/or short (aggressive accounts) with a tight stop after the latest sell signal. Yesterday, the price sold down to the Daily Expected Move low and is opening below today’s Daily Expected Move low (4776) this morning after steady selling all night. The Weekly Expected Move low is around 4765, and might also be tested today.

So far in this shortened trading week, the S&P 500 is stumbling as we head into Friday’s Monthly OPEX, largely due to Fed comments, stronger-than-expected economic reports, and some ensuing pressure on interest rates. We have more Fed speakers and a few more key reports (e.g. Consumer Confidence) later this week, so expect volatility to increase as the week wears on. As we are now into Quarterly Earnings Reports and season, forward guidance could also throw a few monkey wrenches into the mix.

A large amount of options Gamma is set to expire this week at Friday’s Monthly OPEX, which can allow the market to move more freely. The main level to watch is 4800 for pinning until the significant Gamma gathering at that level expires.

Below that, there aren’t many supportive levels until 4700 and then 4600. The Gamma flip line is currently at 4750. If the price decisively drops below that, it opens the door for more volatility and the potential to test 4700 and 4600. There are large air pockets down to those levels so the price can move quickly. That would be the more bearish case.

On the bullish side, the price is above the Year-To-Date (YTD) VWAP and is currently trading above the YTD Low VWAP and below the YTD High VWAP. On a Week-To-Date/Daily basis, the price closed yesterday just below the Weekly VWAP.

For the bullish case, we want to hold the YTD Low VWAP and get back above the WTD VWAP. The bullish case would see the price move up to the 4800 pin and potentially make a run for the all-time high (ATH) after OPEX.

But the price is trading below the 5-day (Machine Line). The line is currently inclining, which is positive. But this is a key short-term level, the violation of which triggers stops on long positions. Another test of the 20-Day (Mean) lies below that.

The weekly EMs are still wide open. If the runoff in Gamma frees the market to move, I’d expect we will make a run for one of the weekly EMs – but whether it will be the WEM high or low is not readily discernable right now.

Founder's Trading Journal

The CP Lie Inflation Report is Out – Sell the News?

Jan 11, 2024 AF Thornton 0 Comment

Good Morning:

— Assuming anything the current regime says is true, inflation came in a little higher than expected. The U.S. Dollar and Treasuries strengthened on the news and the S&P 500 Futures weakened.

— This could very well be a “Buy the Rumor – Sell the News Event.” And that could potentially strike a double top in the S&P 500.

— Continued jobless claims reported less than expected – yawn.

— Inflation reports are the big news for the day and week. With retail inflation out of the way, wholesale inflation (PPI) reports tomorrow. Don’t forget that the January Monthly Options Expiration is Friday.

— The Expected Move for the day allows for about +- 32 points and there will be an incentive for Dealers to drive the price back below the Weekly Expected Move High at 4795.75 before Friday’s expiration. Dealers want to return prices to the Weekly Expected Move range where they can avoid losses.

— Local 0DTE (options expiring today) support is 4775 and resistance is 4800.

— Friday is monthly options expiration, as well as the normal weekly expiry.

— We are moving stops up to 4801.50 for the Daily and Hourly strategies which is a few ticks below the Globex morning low (4801.50).

— If we get stopped out, we will reevaluate at the 5-day line.

A.F. Thornton

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