Category Navigator™ Signals for Swing Traders

Buy signal corrected – buy is 4208, not 4108.

The Navigator swing strategy has triggered a new buy signal at 4208 on the S&P 500 index futures. It is recommended that the buy signal be executed towards the close today or on a return to 4215, where weekly options expire. 

The Founders Group is 100% invested using the S&P 500 Mini-Futures Contract. Risks are extremely high, so be very, very careful and use stops. You can use other indices or sectors by analogy.

Due to the Weekly Options Expiration at around 4215 on the S&P 500 index, the market-makers will likely drive the price back down toward this level before the close. If so, that would be a good place to get positioned today.

If the market makers cannot drive the price lower, an unlikely outcome, then wait for a dip on the one or two-hour chart to get involved – even if it is next week. The point is, we are now buying dips as we enter this last phase of the rally before a larger correction unfolds.

A.F. Thornton

Tuesday Evening, May 4, 2021

Sometimes I can be dumb as a skunk (no offense to skunks). I was getting all excited this morning, thinking the market top had finally arrived. I shorted several indexes yesterday (Monday) and started handing out parachutes to less fortunate traders who went all-in long yesterday at a poor location. It is a wonder I wasn’t popping champagne corks.

But, from all appearances thus far, we merely put the bottom in on a minor correction today – likely of the 80-day cycle variety. Perhaps completion of a fourth wave in Elliot Wave parlance – with a fifth and final wave about to take us higher. This also was the “minor” low possibility I mentioned in Sunday night’s weekly outlook. I had already profitably covered some of my shorts at the open today (dumb – I should have kept all of them until mid-day). I have been such a chicken lately (no offense to chickens). I suppose I have been overly protective of my capital due to the positive and rational economic and political environment. Of course, I am being facetious.

I sent out this alert as we approached the important support zone mid-day, where I covered the rest of my short positions on the S&P 500. Reviewing everything tonight, the volume spike today and the second spike in the put/call ratio since last Friday makes me believe that the low is in – at least for now. That does not necessarily portend new highs – likely some indexes and sectors will see new highs and some won’t. It all depends on the success of this next attempt to pivot higher.

We shall see what tomorrow brings, but the indexes are more likely than not to pivot higher here. The S&P 500 might even attempt new highs before finally rolling over into the 18-month cycle correction. I am not so confident about the relative strength of growth or tech stocks and their dominant index, the NASDAQ 100. The index would be lucky to reach its recent all-time high. All of this leaves me in a 24-hour wait and see mode.

The difference between a minor low and a major one, and the complications we face here, has to do with our new friend – inflation. The positions of the cycles also influence the outcome – and the longer cycles have wide variations in their troughing windows. 

To satisfy the criterea for an intermediate correction, nearly all 11 S&P 500 sectors will need to participate in the precipitous decline. Today, tech bore the brunt of the decline as we continued to see rotation back into the value/cyclical sectors, particularly those that benefit from inflation. This creates a math problem because different sectors have different weightings and influence on the indexes. With the highest index weighting at 27%, Tech can weigh the major indexes down like an anchor – even when the other sectors are trying to float.

The labels below from today show the current sector weightings in order of their influence. Four out of the 11 sectors were still positive (green versus red) today. Healthcare would be defensive and expected to perform better in a decline, so it does not count as much in my analysis of the day. But Financials, Industrials, and Basic Materials are risk-on sectors that all benefit from higher inflation and interest rates. Energy benefits as well – and it was barely negative.

Also, there is a bullish, ascending triangle in retail (XRT). Even Warren Buffet believes retailers have pricing power here. By the way, have you noticed the shrinking package sizes at the stores lately? Sneaky! Incidentally, Mr. Buffet announced that he was terrified by current market valuations at the recent Berkshire Hathaway meeting. 

So for the moment, what we are seeing is another rotation out of tech and into sectors that can both preserve their profit margins and benefit from the inflation that is brutally attacking the economy, consumers, and lower-income Americans – courtesy of the Uniparty (both Democrats and Republicans) run amock. 

Our rulers have fallen in love with the printing press and seemingly lost their minds. Or, from a more dystopian perspective, they are purposely levying inflation – the most hideous, regressive, underhanded, and hidden tax known to humans on unsuspecting and Americans. Lower and middle-income earners will suffer the most – just as they always do. Our rulers suggest that only Americans making less than $400,000 will see a tax increase. Really? What a joke! Does that include inflation? Obviously not.

I laugh when all the headlines read, “Inflation is Coming.” Look around, friends; it is already here. Look at housing prices, gas prices, grocery prices, car prices, etc. – what the hell do they mean “it is coming”? The recent rise in lumber prices alone adds $36,000 of additional cost to the price of the average newly constructed home.

I can hardly discuss inflation, as I am seething with anger watching our politicians take this country down the same road as 1920s Weimar Germany. The current crop of politicians are so unbelievably arrogant in ignoring history’s lessons. I am darn sick and tired of their new love with MMT (Modern Monetary Theory). It is not unlike the Covid-19 vaccine- we are all current guinea pigs of inadequately tested and proven theories. 

With MMT, particularly the leftist politicians and bankers think they can print as much money as they want because the US Dollar is the current world reserve currency. The truth is – MMT really stands for “more money today.” The hell with the future. It is the current ruling class version of the argument “this time its different.” Those are the four most dangerous words in financial market history. IT IS NEVER DIFFERENT – no matter how much smarter this group thinks they are than their predecessors throughout history.

Here are the lessons of history – in case one of these morons ever reads this. There isn’t a single fiat currency that has lasted as a reserve currency for more than four generations in the history of the world. Moreover, there is no dominant world power that has lasted more than four generations at the global helm in recent memory. That is what a fourth turning is all about.

I am seething because I have to sit and watch our corrupt political class walk us right into a collapse, surrendering world domination to China. Sometimes, I even believe a cabal in our government wants the collapse so they can reboot us in the authoritarian model of China and the World Economic Forum’s Great Reset. The US Constitution is a terrible inconvenience for these people. They prefer to toss it out in favor of the surveillance state.

Know this; there are no accidents or coincidences. It is almost as if “heads” – the central planners win – “tails” the people lose. I can hardly contain my disdain for Washington, D.C. these days, and the incompetent, ego-maniac bureaucrats that run it. Our founders feared this day would come from the outset of the country.

And let me be clear; I see little (if any) difference between Republicans and Democrats, save a very, very few good ones on each side. 

Make no mistake about where we are – this is the people versus the ruling class. This is not about Democrats versus Republicans, conservatives versus liberals, or one group identity versus another. All of that is a smokescreen to attempt to distract and divide us. God forbid if all of us got together on our common ground and threw all the “&*%(#$” out. If the people don’t get a grip soon, the Uniparty will take this country – and our assets – down. And it will happen sooner rather than later.

So maybe we party on from this minor low – I haven’t decided yet. I don’t want to be the last one to turn the lights out. I cannot possibly convey how bad things could get if we don’t turn these corrupt, asinine policies – and the inflation that follows – around soon. You know it in your heart. 

Unlike the ruling class, you have common sense, haven’t taken a payoff, and have no agenda other than a decent life for your friends and family.

Thanks for letting me rant.

A.F. Thornton

Be on Alert for More Sells in the Morning

The overseas markets broke out of this week’s range tonight, carrying the NASDAQ 100 and S&P 500 Futures a good distance above the Weekly Expected Move highs. 

If New York opens at these levels or higher, market makers may have to scramble and buy even more futures to neutralize their deltas before Friday’s expiration. I want to sell our remaining S&P 500, NASDAQ 100 futures, and XLF option swing positions into that strength. 

As I have discussed this past week, Blowing through the expected moves is a rare event, and I want to take advantage. So far, this is happening in Globex, which is not the most reliable indication if not confirmed in regular session trading. 

Nevertheless, if this breakout follows through in the regular session tomorrow, I would attribute it to the power of a volatility squeeze firing long as we are witnessing in the NASDAQ 100 index.

I may also want to add to our gold (GLD) position and expect to see our energy position (XLE) pick up, or it will be disposed of summarily, as it is the only drag on the portfolio in this latest run. 

Stay tuned.

A.F. Thornton

The NASDAQ 100 traded just under its Weekly Expected Move high at 13,637 this morning, so be aware of the limitations to further upside progress once this level is achieved. The Founders Group currently has 10% allocated to the index (in leveraged futures), and we are satisfied with that position on a swing-trading basis.

The Founders Group also cut our S&P 500 futures position back to 10% by selling another 10% of the position at 4074.25 this morning, taking advantage of its position above 4067 which is the expected move high for the S&P 500 index this week. 

This results in our current allocation for the Navigator Swing Trading strategy as 10% Nasdaq 100 futures, 10% S&P 500 futures, 10% XLF (Financials) options, 10% XLW (Energy) options, and 5% GLD (Gold) options for a total of 45% invested, but still considerably leveraged.

Sell signals are not driving these allocation reductions. We are simply deleveraging in light of the substantial gains experienced over the past three sessions. If we were not leveraged, we would consider maintaining fully invested positions until we had a Navigator Algorithm sell signal at hand.

A.F. Thornton

The last few sessions have seen a phenomenal rally. But the S&P 500 Index, as well as the XLK (technology), XLC (communications), XLY (consumer cyclical), and XLB (basic materials) sectors, have already tagged their weekly expected move highs – diminishing the probability for further gains this week. Expect some backing and filling and perhaps a retest of recent breakouts. Again, we are contemplating the probabilities.

There are times when the market will blow materially through the weekly options expiration highs. On these rare occasions, the gains can be something to behold – as market makers are forced to buy futures to neutralize their losses, leading to further gains. There is tolerance for some excess over the levels, especially early in the week, so the price must materially exceed the expiration levels to trigger the market makers. But that is the least probable outcome, so carry forward the levels we just achieved and these implications.

Tagging the expected move highs is the reason the Founders Group trimmed positions this morning. We do not have an Algo Sell signal as yet.

Market Outlook Remains Positive

There are no changes to the swing outlook. We added another 10% to our NASDAQ 100 position yesterday, bringing us up to 90% invested in the Founders Group. We are looking for double tops in Financials, Energy, and the NASDAQ 100 with a marginal new high in the S&P 500 index. Those are our targets and where we intend to take profits – but we will see when we get there. 

It will be choppy today and tomorrow as we end the calendar quarter, and weekly and quarterly options expire. The NASDAQ 100 tends to sell off a bit into the end of the quarter and then pop into a rally for several weeks after the new quarter begins. Moreover, April tends to be one of the strongest months of the year. However, this must be interpreted in the context of the nominal 18-month cycle peak asserting itself soon. 

I will adjust our stops higher later this morning, but for now use a close below the 5-day exponential moving average. There will be no outlook published tomorrow, which is when options will expire, and the trading week will end early. It is unwise to day trade into a double options expiration day, especially before a three-day holiday.

Day Trade Plan Today

My day trade plan always focuses on the S&P 500, but the NASDAQ 100 index can be traded by analogy if you can handle the additional volatility. Yesterday followed our script nearly to the letter with a symmetrical, bell-curve profile. Balance rules are in play again, using yesterday’s high at 3959 and low at 3934 (both rounded) as your range. Assume responsive trading (bouncing off from those levels) until a breakout of the range occurs and then monitor for continuation. 

The fact that the overnight high and yesterday’s high is the same should add to the odds that an upside breakout is more probable than a downside and should govern your actions during today’s session. Should the break be downward, target the first virgin point of control at 3921.25.

You are all probably wondering if I have some “wave” fetish. There are Elliott Waves, Cycle waves, and even Fourth Turning waves. It could make one seasick. Well, there are virus waves too, and now a fourth, more lethal wave is feared.

A few days back, I quoted German Chancellor Angela Merkel on the seriousness of the new virus strain coming from Great Britain in a so-called “fourth” virus waive. Now she warns Germany that they must ‘stop this BRITISH virus’ or the country ‘will see TEN TIMES as many cases by Easter’ – as coffins ALREADY pile up in virus hotspots. Angela is so upset that she seems to have forgotten her smug, elite, political correctness rules. 

I guess Angela can say “British Virus” – just not “China Virus.” Perhaps the Germans are still a little sore about World War II. Or, maybe the Brits are not bribing as many politicians around the world as the Chinese. Anyway, Angela may find herself suspended from the next meeting of the “Great Reset.” The club has rules, right?

Flying through Germany (even with less than a two-hour layover) a week ago required a valid PC test – which takes three days to get results. That is not an easy test to time. What if you get to Germany after the test you took three days earlier comes back positive? Good luck with that. Where do you go? Quarantine anyone?

From personal experience, Greece is in complete lockdown – as is most of Europe. It makes you appreciate how bad it didn’t get in the U.S. – but the Dems weren’t in charge of the country then. Nothing is open in Greece; save a few essentials. You have to text and get a note from your mother to even be out on the streets, and you better have your papers. 

To visit my father-in-law in the hospital, you have to have a valid PC test every three days. Only one person can visit at a time. By the way, even the best hospitals in Athens are absolutely disgusting. We even have him in a “private” hospital at a cost of roughly $5000 U.S. Dollars a day. I have pictures. 

Recall that most of our medical terminology comes from Greece – arguably one of the most sophisticated societies in history. I am reminded, however, that this is where democracy first started and failed. If you want socialized medicine, take a look at it in full operation before you decide. You don’t know if you will die of your condition in the hospital – or the unsanitary conditions. We are witnessing both first hand. As my wife is an R.N. and nutritionist, she is literally coming unglued at the conditions. As someone with economic credentials, I can tell you that Europe is in serious, serious economic distress.

So now the new U.S. CDC director hit the meltdown panic button yesterday. Uncle Joe underscored the risks – vaccines for everyone, etc., etc. Naturally, this will be a convenient underpinning for another $4 to $5 trillion spending boondoggle putting us closer to bankrupting the country. You see, if the new boondoggle “infrastructure” bill is tied to the China Virus – it can pass by a simple majority – no filibuster. But there is no downside to the Dems – as this will all be Trump’s fault anyway, even though he is now golfing in Florida. In fact, for the lifetime of the youngest baby born this year, everything will still be Trump’s fault. That is true immortality for you!

Meanwhile, back at the markets, this may explain the surge in the relative strength of the Consumer Staples (XLP), Utilities (XLU), and Real Estate (XLRE) sectors of late. You see, we are told that interest rates and inflation are surging. Yet, utilities and real estate are extremely interest-sensitive and should be going down. The U.S. Dollar is supposed to be crashing, but it is going up. Gold, supposedly a harbinger of inflation, has also been going down and failed to break out yesterday. The NASDAQ 100, also supposedly interest-sensitive, still holds its own in a triangle pattern, indicating equal power between bulls and bears. The S&P 500 is a few ticks from new highs.

The logical explanation for these somewhat unusual Intermarket relationships could very well be that a fourth and more lethal virus strain is on the way. The NASDAQ 100 and Big Tech would benefit from another stay-at-home virus surge. This time, we have an authoritarian White House that won’t hesitate to dictate shutdowns from on high. Consumer Staples, Utilities, and Real Estate may be interested sensitive, but they are also the most defensive sectors in the equity universe. Their recent relative strength could indicate rotation into defense as virus fears grow – higher interest rates be damned. And cyclicals? Look out below.

But all in all, the markets held their own, at least for yesterday. They could have choked on the Bill Hwang’s Archegos hedge fund blow-up.  The Financials, most vulnerable to systematic risk, held their own as well.

Today and tomorrow will be choppy regardless, as the first calendar quarter comes to an end. Then we go into April, typically the strongest month of the year for stocks.

There is a lot of green in April too:

But these aren’t normal times. At least we are told this by some prominent investors calling for an April crash. It seems such an easy call. The 18-month cycle could be peaking. The debt is insane.

But in my experience, crashes don’t come when too many people are calling for one. I have this odd feeling that the markets will surprise everyone with a contained, reasonable 10% to 15% correction on the nominal 18-month low. You have to remember this; bull markets don’t die of old age; the Fed kills them. The Fed is feeding this bull, not killing it. Until Fed policy changes, the markets will be volatile, choppy, and perhaps unpleasant at times. But there likely won’t be a crash – absent an exogenous event.

Day Trading Plan

Assume responsive trade within the value area as the entire overnight range is within it.
My upside key level for a potential initiating move higher is the back-to-back settlements at 3964.25. If breached, monitor for continuation and target the all time high at 3978.50.
My downside key level for a potential initiating move lower is yesterday’s low at 3931.25. A test there may put the 3/26 VPOC into play at 3921.25.

This is an update to Sunday’s outlook with the morning day-trade plan included. In my own Biden moment, I mixed up Zimbabwe’s currency for Lebanon. I have also added some brief commentary about the Tiger Cub hedge fund blowing up with a $20 billion margin call – leading to 30% plunges in ViacomCBS and Discover stocks last week on forced liquidations.

So we have a four-day trading week ahead that will end with Good Friday, a holiday for the US Markets. We are coming into this week 80% invested, with positions in the S&P 500, NASDAQ 100, XLF (Financials ETF), and XLE (Energy ETF). Nothing in Globex last night has me questioning our positions pre-market. Weekly options are forecasting a plus or minus range for the S&P 500 of 60 points (a total 120 point top the to the bottom range), with the NASDAQ 100 at plus or minus 330 points (a total 660 point top the to bottom range).

Last Monday, the markets attempted to launch a successful retest of the March 5th, 20-week cycle low. The retest came in higher and appeared to cement the right shoulder of the potential head and shoulders reversal pattern I recently identified on the NASDAQ 100 Index. The S&P 500 had a different yet positive pattern as well. And the March dips coincided with the first 20-day cycle loop out of the March 5th bottom.

I was on it – positioning to 50% on the previous Friday. We started the week with the initial (unrealized) gains from our previous Friday positions and then added to the positions intraday at Monday’s lows. All was well Monday night and into Tuesday morning, as I was patting myself on the back for the NASDAQ 100 reverse rotation call. By the way, the best jinx for a good trader is when he or she thinks they have become smart. The market gods have a way of exacting revenge for such arrogance.

Several events then intervened Tuesday, interrupted the flow, and stopped us out of our positions. First, Lebanon’s currency collapse continued to rattle international bond markets. China sanctions and threats added to the global intrigue. Then, both Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell began testifying to Congress, with the markets hanging on every word relating to inflation and interest rates. 

The mid-week markets then tried to digest sudden and inexplicable 30% plus plunges in stocks like CBSViacom and Discover. The plunges turned out to be driven by loan collateral sales associated with the Tiger Cub hedge fund blowing sky high on a $20 billion margin call. I ask myself – is the latter situation is a sign of things to come?

By Thursday, the markets had settled down, and we put about 60% of our cash back to work at the mid-day lows, just ahead of high volume buying that kicked-into the last hour of trading. This indicated serious institutional buying to me – and I prefer to hang out with the smart money. 

Then, we put another 20% to work at the lows on Friday, right before another explosive, institutionally-driven, and high-volume rally into the close. It is one thing for institutions to buy on Thursday. Still, when they plunge in during the last hour on a Friday afternoon before the weekend – that is the true bullish statement – especially ahead of a holiday-shortened trading week. 

Of course, the market’s resumption of the trend lines up with everything else I see, confirming that the 20-week cycle low is in. The only caveat would be if these Thursday and Friday runs were short-covering (see more on this below).

After reviewing our positions in detail over the weekend, I am impressed with how solid they look so far, appearing poised to move higher but perhaps not on to new highs in every case – depending on how early the peak in the nominal 18-month cycle arrives. The XLE (Energy ETF) position is even getting a short-term boost from the ship blocking the Suez Canal and adding to even more supply chain interruptions and the inflation spikes occurring worldwide as a result. 

In particular, I wanted to draw your attention to the NASDAQ 100 (QQQ ETF)), which appears to be moving out of a volatility squeeze on the daily chart. Volatility squeezes often lead to a big move – but they don’t forecast the move’s direction. We have to infer direction from our other work, as with the recent bottoming of cycles due, Navigator algorithm buy signals, momentum divergences, trend direction, etc. In this case, we would infer that the volatility squeeze would thrust prices higher:

The other sector that caught my eye over the weekend was gold. The U.S. Dollar has been rallying – attracting international capital to our higher interest rates. This is the Fed’s worst nightmare – justifying an entirely separate discussion (coming soon). The Fed needs to tamp down the dollar’s rise by fighting higher interest rates at both ends of the yield curve, raising the potential for both bonds and gold to rally, albeit briefly. In that sense, gold appears tradeable. A true trend reversal would take a lot more work:

Despite all the recent inflation rhetoric, gold and bonds have been trading together. Perhaps if they decouple, a more dystopian scenario could be underway. In fact, gold, dollar, and bond prices correlating in rallies could be the first seeds to spot in a potential flight to safety or risk-off transition. The Founder’s Group has not taken a gold position yet, but it is on our radar, and I will share the trade if it manifests. 

For now, I continue to encourage readers to buy small denomination gold and silver coins for a rainy day, especially when prices have dipped like this. I am not advocating so-called “rare” coins. Buy Krugerrands or other coins – or any other tangible forms – that track the spot price of gold or silver as closely as possible, are small enough to use for bartering or currency in an all-out disaster, and don’t overpay in commissions. I am talking physical gold and silver in your physical possession – not paper form.

The price of gold is heavily tamped down and manipulated by central banks, as it competes against all government inflated fiat global currencies, including the U.S. Dollar. In my opinion. Gold is undervalued, and when the central banks lose control of the situation at hand, gold will skyrocket.

I would make one final and positive point on this potential pivot higher in the stock market indexes. Coincident to Wednesday’s low in the NASDAQ 100 and S&P 500, we saw the CBOE Put/Call ratio spike, a positive sign of fear we typically want to see at important lows. Signs of fear have been rare these days – with sentiment so elevated in the wake of the retail crowd’s arrival. This gave me additional confidence to begin retaking positions on Thursday – at least in the short term.

The CBOE Put/Call ratio fear spike was confirmed by the CNN Fear/Greed Index, which has parachuted out of the greed clouds and back to moderate fear, at least right before Thursday and Friday’s rally. While we don’t see extreme fear, nor would we expect to at a 20-week cycle low,  the fact that the index had dropped back to 40 before Friday’s open, and is now neutral after Friday’s final hour rally, helps confirm that the froth is temporarily out of the market. Markets are known to climb the wall of worry when the crowd is skeptical.

As you can see from the chart below, we are at the low end of the index’s recent range – and we all know it has been difficult to scare this crowd. Note that the two extremes in fear at the beginning of 2019 and again at the 2020 March lows were coincidental with the nominal 18-month cycle lows in the stock market.

Gordon Grecko’s famous line in the movie “Wall Street” was “Greed is Good.” Well, that may work in movies, but when you are buying into the markets, “Fear is Good” and “Greed is Bad,” at least as far as investor sentiment goes. Or, as Ben Franklin so deftly put it many years ago, we should “Buy on the Canons, and Sell on the Trumpets.”

So, all in all, my conclusions are that we are well-positioned for the final run in this nominal 18-month cycle. It should take us a bit higher, perhaps to double tops in the NASDAQ 100, Energy, and Financials. The S&P 500 is likely to tag the 4000 level finally. My Fibonacci targets are only slightly above the recent highs – so I don’t know how much higher we can really go before the larger cycle asserts itself. 

At this point, we are still not quite out of the gate, heading into a shortened holiday week that may find us in light trading volume. Whether these instruments follow through or not, we must monitor a final run like this closely. This is not a run for inattentive investors or traders.

When the nominal 18-month cycle resets mid-year, you likely will be able to position and sit for a while and get out to the golf course. I know I will.

Day Trading Plan

I don’t typically trade on Mondays, and I already have large long positions as outline above. Spike Rules will govern the open and potentially the remainder of the trading day if you want to trade today. Acceptance within Friday’s spike is seen as bullish. 

Use the bottom of the spike at 3934.25 (12,874 on the NASDAQ 100) as a bull/bear line in the sand. A stronger market should not move below that level or deeper into the value area. The spike bottom can be a long setup on any weakness that touches it.

As Friday was a follow-through day with a strong close, assume that any acceptance below the Value Area Low at 3931.50 (12,782 on the NASDAQ 100) has the potential to switch the tone back to balance/chop.

A.F. Thornton

 

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