Navigator™ Signals for Swing Traders | Archimedes Methodologies

Navigator™ Signals for Day Traders Navigator™ Signals for Swing Traders

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When I woke up this morning, I reminded myself what a privilege it is to undertake this endeavor every day and enjoy the freedom it brings. It is not always easy. In fact, it is never easy. It takes many observations over many years to begin to discern financial market behavior and patterns.

One way I try to understand what is happening at the moment, is to find one or two base periods in the past to compare to the period at hand. That is the advantage of experience. Generally, I have lived a similar period having traded and invested for half a generation.

As to the recovery, 1987. 2000, and 2009 come to mind. I draw many inferences and comparisons to those periods. As to the current market perhaps peaking (short-term) and correcting, there is no better comparison than 1999. I think to myself ‘giddy is as giddy does.’

Jim Rogers, cofounder of the Quantum Fund, and one of the best investors of our generation, faced a dilemma similar to what I am feeling now in 1999. He saw the giddiness of the crowd then, and even shorted the market a few times. Frustrated to his core, he could not take it any longer. My understanding is that he bought some long-term put options, LEAPS as they are called that bet on the market rolling over. Then he left New York, jumped on his motorcycle and traveled the entire globe.

For me, that is quite tempting. This is the free, public version of what I do. You don’t pay for it, so maybe that is all it is worth. I had no problem telling the public to buy after the rout last fall. Over the past three months, I have not been so inclined. The Navigator strategy was up nearly 400% at the end of the first quarter. Now, I am not even supposed to tell you that unless I get licensed. The borderline between a newsletter and registering as an advisor is a fine line. If I get too specific, I have to register. I am not so inclined at the moment, I don’t want to complicate my simple life.

But the dilemma is much the same. If I tell you to take a swing position, as I did last week with the XLF, you see what can happen in just one bad day. We were stopped out on Friday. But I was on a plane and could not send out a note. Granted, you knew where the stop was, but a note still helps. I am sure it was a dilemma. And then I fear that when you got the update Monday, if you sold into the weakness, it would have been better to wait just a day and you would have exited better. It can be quite a dilemma.

We passed the 60% retracement of the decline overnight. That likely means a test of the old highs. We had not yet reached our upside targets on Friday when this decline hit, so they remain open. And we cannot say for sure if monthly options expiration caused Friday and Monday to be a one-off decline like last month’s failed bear breakdown.

So my conclusion is this; I am not going to jump on a motorcycle but I have been around long enough that I am not going to issue a Navigator buy signal until we see a correction of a decent magnitude. That will come sooner rather than later. The monthly S&P 500 chart is in a clear, rising wedge / ending diagonal pattern. That portends the end of a run, not the beginning. It likely means more than a 10% correction ahead that lasts one to three months as it zigs and zags.

We are entering the most seasonally weak period of the year for stocks. We have the monthly chart wedge. There are plenty of catalysts circling. We just need to be patient. If I see any one-offs in a sector here or there, I will let you know. In the meantime, I am satisfied to day-trade until the moment arrives to take a longer-term position.

Today’s Plan

The levels I will be watching today are (i) the point of control (POC or high volume node) recently tagged in three different sessions at 4369.75; (ii) the overnight high at 4361.25, yesterday’s regular session (RTH) high (also yesterday’s settlement)at 4361.25; (iii) yesterday’s POC at 4340; and (iv) Monday’s (July 20) virgin (untouched) point of control (VPOC) at 4315. Always remember that these are the levels I am prioritizing today for rejection or acceptance to help filter the noise, but they are not the only levels where the market could react.

Yesterday’s RTH activity was balancing to higher, leaving the VPOC from 7.20 in its wake. Overnight activity was almost all higher until the higher jobless claims put a slight damper on things, taking prices back down into range. Overall, the reaction seems minor at this point as current prices are holding above yesterday’s value area.

While the short covering rally of 7.20 was very emotional with poor structure, yesterday’s more two sided trade confirmed a lot of the reversal, essentially proving those buyers right for now. Leaving another VPOC today alongside the one from Tuesday would be further confirmation that buyers are in control.

Other than being short term overbought with some potential overhead supply from the Globex session, there is little shock and awe and not much indication as to how the open will play out. The better trades will develop later rather than earlier.

Any strength over the ONH should target that multiple POC area. Consider this a high volume node where prices should be attracted. Weakness should target the POC as this is what markets “should” do. As mentioned above, consider any failure to do so a sign of strength.

A.F. Thornton

Navigator™ Signals for Swing Traders

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In this Weekly Series, We Examine the Market From a Big Picture, Swing Trading Perspective. We Use the S&P 500 Index as our Broad Market Proxy, and All References to the Market Refer to the S&P 500 Index Unless Otherwise Noted. The Market Remains the Most Significant Variable in Higher or Lower Stock Prices, Influencing 60% to 70% of Individual Stock Price Movement. The Decision to Be Long or Short Based on the General Market’s Direction is One of the Most Important Decisions Investors Will Undertake.

In a word, the biggest problem with the market here, and perhaps the only problem, is breadth. This latest rally is narrow, with the breadth (and even some strength measures) still not confirming the new highs.

This could result in the market rolling over into an overdue intermediate correction. Or, perhaps another rotation from tech into economically sensitive names can help the market broaden out. Your guess is as good as mine, but we know what to look for. Our entry last week into the broad financials group (XLF) is a bet that the market will broaden out, and rates will begin to rise a bit again.

July currently has delivered a small bull bar trading at all-time highs. As previously discussed in these pages, this is the 3rd push higher in a tight bull channel since the pandemic lows. The rally is now rising into a parabolic wedge buy climax, which often attracts profit takers.

July is the 6th consecutive monthly bull bar, which is extreme. The last time we had six consecutive bull bars was in 2011. This increases the chance that July will close below the open of the month. If there is a big bear bar closing near its low, it will increase the chance of two to three months of a sideways to down move.

However, because the rally has been in a tight bull channel, bulls will buy the eventual pullback, even if it is 20%. In this case, I am expecting about a 10% pullback to the 200-day moving average.

While there continue to be weaknesses under the hood of this market, the price action does not yet evidence that the market is ready to correct in a big way.

Last week’s bar was a small bull bar at a new high with a big tail below. The tail below indicates bulls bought the test of last week’s low, but the small body indicates a slight loss of momentum.

Besides the 4404 trading range measured move we have been discussing, the top of the trend channel around 4500 continues to be a magnet above.

Good luck this week. I will be traveling Wednesday, Thursday, and Friday, so there will be no updates after tomorrow until Monday, July 19, 2021.

A.F. Thornton

Navigator™ Signals for Day Traders Navigator™ Signals for Swing Traders

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The action so far today is quite bullish, though the tempo is plodding along. We had a gap-and-go scenario per the gap rules. We have nearly 9 to 1 and 4 to 1 advancers versus decliners on the NYSE and NASDAQ, respectively. On the S&P 500, we have pegged at a net 350 advancers all morning.

In addition to the strong internals mentioned above, tick distribution has been positive, along with cumulative ticks, and we see new, all-time highs at this writing.

The Founders Group just took a 10% position in the August 20th XLF 36 Calls. The chart is very constructive. Our initial stop will be a close below today’s low at 36.09. This is a swing trade, and we plan to hold the position for more than a day trade. For how long? We cannot say for sure, but we should ride the position to a new all-time high above 38.60.

Don’t go for broke. You can scale in. A close above the 21 EMA would justify adding to the position.

The next update will come over the weekend. Enjoy yours!

A.F. Thornton

Navigator™ Signals for Swing Traders

View from the Top – Interim Update

Jun 24, 2021 AF Thornton 0 Comment

If I had one goal in these pages, it would be to give you advice you can actually follow and use. As I am sure you can attest, sometimes I get closer to the target than others. To a degree, all of the pontificating and speculation is pointless. And the question then becomes, why even try? Price, as it unfolds in front of us, is the best indicator of what to do next. Naturally, it takes time and experience to interpret price changes and volatility.

Also, there is nothing worse, at least in my view, than the advice “it might be this or it might be that.” I find myself saying “for God’s sakes, man, just spit it out and tell me what to do!” That is where the Navigator Algorithm is especially helpful. It is as close to the bottom line as it gets, and it has a 70% statistical probability of being correct. When you add a common sense stop-loss level to the signal, your losses are minimal even when the signal misses.

One reason the swing strategy (based on the Navigator Algorithm) allows for definitive calls is the time frame. The strategy is derived from daily data. Signals are far enough apart that you can actually execute them without living in front of your computer screens.

With day trading, the speed of signals is such that about all I can do each morning is to identify the most important levels we are likely to encounter. Then, you can watch for a price pivot to occur if the level cannot be overtaken. If the level is overtaken, then you monitor for continuation.

All of that is well and good, but what the heck does this all mean? What does the process entail and how do you use it? What are all these crazy terms? What do you mean, “monitor for continuation?”

Very soon, both the swing and day-trading strategies will be detailed in password-protected portions of our website, along with checklists that will allow you to use these strategies to their fullest potential. In the meantime, let’s briefly review the big picture.

The Macro Narrative

The broad market peaked in early May. Currently, more the half of the stocks in the S&P 500 are trading below their 50-day moving average. Most of the 11 S&P 500 sectors are already in corrections. Only a few sectors are still holding the market up – most notably technology.

The sector and stock weightings of the remaining positive areas are such that the indexes are still rising even though the majority of stocks are correcting. This is most pronounced in the NASDAQ 100, but also reflected in the S&P 500 index. My belief is that the few rising sectors left, such as technology, will surrender soon and we will have a more synchronous correction or pronounced trading range.

I thought it might be helpful to examine two periods from the past that are analogous to our current situation. These periods share recoveries from deep corrections such as the China Virus low we experienced last year, boosted by aggressive Fed intervention. In both cases, the nominal 18-month cycle low was not severe, as I am expecting now. I have noted that I am only expecting about a 10% correction that will eventually take us to the 200-day line.

The most notable, comparable market periods to the one at hand are the summers of 2004 and 2010. Both summers followed parabolic, Fed-policy-induced stock market recoveries from bear markets.

First, let’s look at the 2002-2004 period in the S&P 500:

In virtually the same time frame as we have recently experienced, the S&P 500 climbed 45% from the March 2003 lows. The market then peaked in the early spring of 2004 and corrected over the summer. Finally, the market ramped-up for a 15% gain into the end of the year. The March 2002 low to the late summer low in 2004 was the full, nominal 18-month cycle for the referenced time frame.

Now, let’s look at the summer of 2010:

[Insert Twilight Zone Theme]. Again, in virtually the same time frame as we have recently experienced, the S&P 500 climbed 81% off the March 2009 lows. The market also peaked in the early spring of 2010. Finally, the market corrected over the summer and then ramped up for a 15% gain into the end of the year. Once again, the March 2009 low to the late summer low in 2010 was the full, nominal 18-month cycle for the referenced time frame.

That is not all that was similar about the summers of 2004 and 2010 to current conditions. Both corrections were preceded by aggressive Fed stimulus and intervention for the economy and financial markets. In both periods, we had a summer of indigestion on speculation of the Fed pulling the reins back on the previously accommodative monetary policy, just as we are experiencing now.

A final but important point is that in both the 2004 and 2010 cases, cyclical and value stocks outperformed growth stocks in the final push into the end of the year. I don’t know if we can ring the bell three times, but let’s be alert for such a shift. Growth stocks have come back into the sun over the past few weeks, holding the S&P 500 and NASDAQ 100 indexes up by their proverbial fingernails.

So if you wondered why I am neutral to bearish, and perhaps why we have not yet achieved a buy signal in the Navigator swing strategy, now you have a little better insight into my thinking. Is this still pontificating? Speculation? Sure. But let’s hope it is “informed” speculation. It always helps to have a base case or two from the past to help understand the present. Human nature does not change – nor do the reaction and behavior of traders. Each period has its nuances, but they do tend to rhyme.

As always, however, I will do my best to keep an open mind as to all possibilities.

Stay tuned…

A.F. Thornton

Navigator™ Signals for Day Traders Navigator™ Signals for Swing Traders

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As indicated yesterday, I am not trading today, nor would I with quadruple witching (monthly and quarterly options and futures expiration). There will be no commentary today as it is an important religious holiday here in Greece. Since just about everyone on this island is either a relative by blood or marriage to my wonderful wife, appearances are important.

The Navigator Swing Strategy remains 100% cash as it has been for the past week or so. As to day trading today, as previously set forth in these pages weird things can happen on quadruple witching days. As a perfect example, we see now (at 8:33 EST – the time of this writing) the S&P 500 making another pass at the WEM low – putting in a brand new (post-Fed Meeting) low at 4173.50. I hand calculate the WEM low to be 4188 – while the computer calculation is 4189. The point is that many people will lose money today if the S&P 500 futures close below the WEM low level.

I was forbidden from sneaking another trade to or from the WEM low here, but I will sneak in a few comments. In this area, between say 4165 and 4188, we have the important rising intermediate trendline at 4193, the Fed Day reversal low at 4183, the 50-day EMA at 4176, and the 6/3 pivot low at 4165. That is a lot of support.

But for today only – I would key in on the 4188-89 WEM options expiration low. There is nothing else to probabilistically cradle the market below 4188-89 after expiration this afternoon. The WEM low will act as a magnet.

While the Weekly Expected Move low holds the market 80% of the time, on the occasions when it doesn’t, especially on an expiration Friday, we could experience a waterfall decline of sorts as market makers rush to neutralize their losses by selling S&P 500 futures contracts. That would be the exception to the rule.

Otherwise, I would expect the market to move back to the 4188-89 level or higher before expiration at the close today – from wherever the market decides to pivot higher after this latest or any further sell-offs later today.

You don’t blindly buy the WEM low. You buy the pivot from the ultimate low or lows the market achieves today (maybe using a 15-minute chart as your primary analysis for the turn). So in one scenario, you may be buying close to the WEM low and continuing higher above it, with a successful retest of the Fed Day low around 4183 in place. Also, however, you could be riding a buy trade from a much lower level back up to the WEM low at 4188-89 by the close. Do you see how this works? Treat the WEM low as a magnet as long as the S&P 500 is trading below it.

Beyond that, the market needs to close above the rising, intermediate trendline currently around 4193 to keep the intermediate trend alive. The S&P 500’s negative divergence (meaning the broad market is not confirming the new high in the NASDAQ 100 by a long shot) is concerning.

But for the NASDAQ 100 firing its last shot higher yesterday, I would be betting that the intermediate trend is finally rolling over. I will have more to say over the weekend, as I am not 100% confident in the analysis yet, but rolling over is my leaning.

Trading much below the 6/3 low today, which sits at 4165.25, could trigger the outlier, waterfall decline from which the market will not recover back to the WEM low. Admittedly, this is something we rarely experience. For now, traders could be running the stops under the Fed Day reversal low at 4183 – only to load up inventory to bring the market right back to the 4188-89 level to take profits late in the day. Right now, the market looks to be forming a falling wedge pattern to reverse higher on the 24-Hour futures data.

With yesterday’s settlement all the way back up at 4212, we would be dealing with a gap this morning (and perhaps a true gap if we open below yesterday’s low at 4183). If so, GAP rules would apply.

Also, keep in mind that we would be opening outside our recent balance area, which has the southern boundary at 4205, with the 5-day EMA just above there at 4209 and the 21-day EMA just below at 4204.

Summarizing then, a close below the 5-day EMA (4209), 21-day EMA (4204), 50-day EMA (4176) and the intermediate trendline itself (4192) nips the intermediate trend. It definitively shifts our strategy from buying dips to shorting rallies for swing trades. Day trades have to be considered day by day.

Best of luck if you decide to trade today, and enjoy your weekend.

A.F. Thornton

Navigator™ Signals for Day Traders Navigator™ Signals for Swing Traders

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The Fed sounded dovish (no apparent policy changes), and the market is unhappy so far. This is the misstep I worried about that would seem illogical at first blush. We like easy monetary policy, right? Unless inflation gets out of the box, which it has.

The price did not even seem to vacillate as usual. Instead, it just sold off right to the Gap area and Weekly Expected Move Low. The WEM Low and our downside target was 4189. The low so far is 4190.25. Ok, I missed it by 1.25 cents. Nobody is perfect.

Let’s see if anything is walked back in the news conference. The WEM low and the 21-day EMA are holding the market thus far, but the wedge is broken. Of course, anything is possible, but it is reasonable to conclude that the intermediate correction we expect is underway. The close will define where we sit, which depends on where the market stands.

Stay tuned – the next update will come after the close.

Navigator™ Signals for Day Traders Navigator™ Signals for Swing Traders

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When one is half Irish as I am, I find myself always on the lookout for Leprechauns. And just because I am paranoid does not mean that they won’t steal my gold. Leprechauns come in many forms.

At least one of them has been around trying to prevent me from launching our Founder’s Group live trading room. The trades I provide to this special group of exceptionally qualified traders are something we have been looking forward to sharing in real-time. Three solid years of work and trading went into creating our discipline, strategies, and algorithms. We continuously improve them.

We were ready to go; then tragedy struck with my father-in-law rapidly deteriorating and passing after his second China Virus shot. As a result, I will be in Greece until early July – and then back again soon after. On this beautiful (but remote) Island, Gig-speed Internet is a fond memory from the States. They will be going straight to 5g, but it still is a few months out.

I cannot broadcast with something akin to dial-up – which is the out-of-the-box service here. Even my Sprint cell phone Internet is faster than the home WiFi service here.

Truly, I am amazed at how well what I do have works. I certainly would not trade a one-minute chart, but 5-minute charts seem to do fine. For now, I will begin the new service by substituting with three daily updates – plus an end-of-day wrap. However, I need to make one more adjustment for the service to have a chance at working.

If we were live in a trading room, I would constantly be sharing my thoughts. If we did a buy or sell, the “why” would be obvious. In the current circumstances, not so much.

Yesterday, by the time the Founder’s Group had sold its NASDAQ 100 position, it took me another 15-20 minutes to write up the “why” and send it out with charts. By that time, the price had moved another 30 points against the trade. What is the point of that?

And this is not the first time that has happened. That is one reason I have not published the investment performance recently. It can render false hope if traders cannot truly achieve it.

So from here on out, I will merely publish “buy” or “sell” and the relevant instrument. I will not explain until later in the day. Most likely, you will glean where I am going by reading the updates.

You have been around long enough to know that my decisions are correct at least 80% of the time and the results have been excellent. Stops, as long as you set and monitor them, take care of the rest.

Had you been able to execute close to the signals, you would be up nearly 400% year-to-date – starting with our humble $10,000 account at the beginning of the year. $10,000 is now $40,000. Last year’s returns were close to 900%. $10,000 became $90,000.

I am also working on a text alert system if I cannot figure out a way to run Pro-Trading Room from the Island. I will likely be spending most of my time here in Kefalonia over the next year, so I will find a solution. Many, many opportunities are opening up here as I am able to span so many time zones.

Also, I will be issuing passwords to the new service, as we do not want the information to be available to the public. I will send you your unique password as soon as it becomes available.

So the market continues to favor the bulls. Still, I published my very short-term concerns yesterday regarding the unusual complacency levels here as we continue to congregate around the all-time highs.

I view this lack of fear and respect for risk in the context of the 18-month cycle as being quite mature. The treasury/stock market ratio also has a negative divergence, as do the number of stocks over their 20 and 50-day moving averages. Leadership yesterday shifted to defensive names.

Consider that the rally in treasuries might actually relate to defensive posturing rather than any vote on higher or lower interest rates.

For all of these reasons, the Founder’s Group went back to cash yesterday. We will give up some gains if a positive break-out occurs this morning, but we will gladly make the sacrifice in light of reasonable indications that the breakout could be a bull trap and fail.

The inflation numbers came out slightly higher than expected, and it is a historically high number for recent times regardless. So far, the S&P 500 has rocked in about a 20-point range, taking out yesterday’s low, the overnight low, and the overnight high (all within minutes after the release).

Since we have moved below yesterday’s range, traders may want to retest that level in the regular session today. As far as balance goes, nothing has been resolved and it would be difficult to know what additional catalyst the market requires to make its ultimate, directional move. We will, therefore, learn a lot in today’s time frame.

Today’s Strategy

Today is the reverse of yesterday. Look for a possible test of the overnight low, and treat it is a go/no go situation. I would treat the top of the range similarly – if we get there. Any acceptance below the overnight low would be negative and my line in the sand for the day. If the overnight low holds, the scenario remains tipped to the bulls.

Good luck today.

A.F. Thornton

Navigator™ Signals for Day Traders Navigator™ Signals for Swing Traders

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Breakout, Double-Top, or More Chop?

The market gods were smiling with forgiveness yesterday. When I confessed my sins on these pages, providence lifted my burdens. So even though I missed the initial moves off the 21-day lines in the indexes last week, the powers above brought the market halfway down Friday’s bar to give me another chance. It was as if a kind hand dropped from the clouds, opening up with the next opportunity.

For the Founder’s Group and the Navigator Swing Strategy, I put us into the NASDAQ 100 at 13,733. I saw a bit more conviction and relative strength there than the S&P 500. The index followed through with a double bottom and positive momentum divergence on the intraday chart. The NASDAQ 100 is moving higher in Globex at this writing. In fact, we are more than 100 points or about $2,000 per contract ahead of our entry, and breaking the neckline of a bottoming head and shoulders pattern that is now reversing higher and should take us up to test the all-time highs, if not higher. We will now use the 5-day stop line as we recently did on our S&P 500 position.

Yet, there is another lesson in these past few sessions that I would like to share. It happens often enough that you might want to place this one in your notebook. It can happen in any time frame. And while I mentioned I am not a pattern trader, I still don’t ignore them. Patterns can help us see the markets in different ways, and even set price projections when the patterns take. A great website for learning patterns and their possibilities is Bulkowski’s PatternTrader.com.

The lesson starts with last Thursday’s labeling of the NASDAQ 100. I had identified a potential head and shoulders topping pattern and labeled it as you will see in the first chart below. Of course, it was a qualified opinion. I often opine in such a way. But let’s face it, I am of no use if I am constantly saying “it might be this” or “it might be that.” And in further confession to the heavenly powers that govern these markets, the pattern did have a negative influence on my decisions last week no matter what I said or how much I was fooling myself.

When we are stopped out on the 5-day line, an Algo sell signal is painting, Tesla and Apple are breaking down, and we are in a large down bar, a topping pattern would merely seem like icing on the cake. I take my stop, head to the beach, and take Friday off, booking the profits and ever confident in my forecast. Thank heavens I didn’t stick around and short the market!

But it is never quite so easy, is it? I have achieved my trading success by combing unrelenting curiosity with constantly questioning the current consensus. Frequently, a topping head and shoulders pattern (or a bottoming head and shoulders pattern) can morph into the same design but smaller and in the opposite direction. This morphing has often happened to me – and it should be in your notebook. I now always consider the possibility.

So there you have it, the reversal’s reversal. Perhaps we will coin that phrase. And with the overnight action breaking out decisively, the NASDAQ 100 seems well on its way to challenging its old high. The pattern projects a move to 14,600, but even if we make it up to the old high at 14,064, the Weekly Expected Move high is at 14,038. That is a rough combo to take out before Friday. Perhaps we could do so next week. Also, remember that even as we break the neckline of the bottoming head and shoulders reversal pattern today, the index could fall back and retest the neckline before it decisively moves higher.

I suppose another item bears mentioning. Last week, the cyclically sensitive sectors such as energy, metals, financials, and industrials seemed to be rocking the universe. Yet this latest move has been all about the interest-sensitive growth stocks, responding to a somewhat unexpected rally in the bond market accompanied by falling 10-year rates. Who would have thought – only a few weeks ago?

Please make no mistake; interest rates will rule sector allocation as we advance and rates will most likely be moving higher. We should let growth do its thing here, but after the cyclical stocks and sectors rest a bit, they are still very much on my radar. Recall my comments from last week, set alerts for these cyclical sectors and stocks around their 21 and 50-day lines, depending on each instruments’ unique behavior. Perhaps the back and forth between cyclical and growth stocks will be with us for some time as the markets move forward.

I might highlight one more element of successful trading if you will kindly indulge me. No matter what happens in trading, you must be willing to jump right back on the horse to succeed. And no question committed students can and will succeed if they are engaged. I am not saying it is easy to do so, but I will constantly harp on this point.

I missed Friday’s move, but I waited patiently for the next opportunity. It came sooner rather than later, but that should not matter. Successful traders (and investors) are market sociopaths. They have no conscience but nearly an automated response to conditions as they present, right or wrong positive or negative.

Today's Day-Trading Plan

Hard to believe, but the S&P 500 futures tested 4215 last night once again and survived. I also noticed that some European indexes, including the German Dax Index, are already trading at new post-pandemic highs, aided by a strong Euro. Actually, at an exchange rate of 1.22 Euros to the Dollar, I am keeping my money in Euros while I am over here. It stings!

At this writing, both the NASDAQ 100 and S&P 500 will open above yesterday’s range and near the candle top. A true gap higher is possible, and gap rules would apply if the true gap presents. Inventory is balanced, so there is no typical incentive to fade a gap – making a gap-and-go scenario more likely. If we make it to the old highs (only a hair above us on the S&P 500), the market will present us with a go/no go situation. Monitor carefully for continuation and be on alert for the bull trap. I don’t know how to tell you to avoid it – but if I had two contracts, I would sell one at the old high and get my stop to break even on the other to keep it as a runner for a continuation of the breakout.

On both the S&P 500 and the NASDAQ 100, don’t lose sight of the WEM highs at 4280 and 14,038, respectively. Even with a true gap higher on the open, the gap won’t be large enough to engender shock and awe, providing less potential for early trade given that there is no overnight inventory imbalance. The better trades might develop later rather than earlier in today’s session.

Upside references and targets are visual and mechanical for all. The all-time highs are the apparent targets on strength, monitoring for continuation after that. On weakness, watch the back-to-back settlements around 4226 on the S&P 500 to see if sellers get more active below them. I would not even consider the short side of anything unless we were below those levels. Continue to carry forward the gap below us we discussed yesterday.

A.F. Thornton,

With Sincere Gratitude to Providence

Navigator™ Signals for Day Traders Navigator™ Signals for Swing Traders

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As expected, the market is balancing back into Friday’s range so far this morning. Maybe I have not lost my touch after all. The S&P 500 has twice tested the top of the old range at 4215. It needs to bounce on this second touch for me to stay positive. Tick distribution is favorable so far, and the cumulative tick has been building positive as well. So it is not as if the market is going down; it just isn’t going up.

There is nothing particularly negative at the moment. The (now apparent) news-driven gains from Friday have stalled. Perhaps we are still missing a catalyst after all. I do like the positive momentum divergence on the morning low on the 5-minute RTH chart.

The Founder’s Group has taken a position in the NASDAQ 100 at 13,733. The reversal down pattern now has a turnaround up pattern on the right side, if it takes. We are running a 15 point stop – using a little discretion to give the trade some room.

Growth stocks are strong this morning, as is the IWM (Russell 2000). The S&P 500 Advance/Decline line is about even. It is hard to get the breakout the bulls want without solid internals. Mixed internals rule the day thus far.

I would put odds at 60% that we still break to new highs in the next few days and about 40% that we don’t. Of course, that is more of an educated guess than anything else.

We shall see if the market will take a run at the highs mid-day or perhaps on this afternoon’s post-lunch drive. The put/call ratio is low, indicating complacency here, which is unhelpful.

It was important to determine early on that we would be balancing this morning. That way, you don’t become overly negative about your existing long positions.

As outlined in the morning’s commentary, I think the tone changes if we drop below 4209 and into Friday’s gap area. So carry that forward in your narrative.

Watch for the bull trap as well. The leprechauns may run us up and above the old highs this afternoon, only to take our gold while they run the stops and bring it back into range. Today is a quiet day so far, and that is when the leprechauns come out to play.

Stay tuned.

A.F. Thornton

Navigator™ Signals for Swing Traders

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The Founder’s Group is taking a long position in the NASDAQ 100 futures at 13733 with a 15 point stop. This is a somewhat risky trade at the top of the range, but also note the upside reversal Head and Shoulders pattern formed from Friday. As always, do your own homework carefully. QQQ at the money July 16 calls or a debit spread will work as well.

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