Category Navigator™ Signals for Day Traders

Navigator™ Signals for Day Traders

Pre-Market Outlook – 6/4/2021

AF Thornton 0 Comment

The market reacted positively to the April employment report released this morning, showing the unemployment rate dropping to 5.8%. As you know, I don’t typically day trade on Friday.

The Employment report got prices well above yesterday’s high. Still, we have now come back into range. We also have overnight inventory that is relatively balanced with an almost equal distribution of time spent on either side of settlement.

Even if there is a small true gap higher by the time the bell rings, we would still be well within the larger balance area where there is a lot of value range if you look to the last week of the market action. For these reasons, better trades are likely to develop later rather than earlier today.

The second thing to note is that I would only focus on two fundamental levels today – the overnight high at 4210.25 and yesterday’s low at 4165.25. On the NASDAQ 100, find the equivalent levels, keeping in mind that the index already bounced from the WEM low yesterday.

It is likely that anything between these levels is simply going to be responsive trade that doesn’t bring about any meaningful change.

Change is an important word. Trading is all about anticipating change and trying to either get ahead of it or get aboard.

The market is looking for a catalyst in my view, and when that arrives we will see the picture more clearly.

Chop, chop – is the buzzword for today.

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook – 6/3/2021

AF Thornton 0 Comment

Yesterday was classic WWSHD and, as Peter Reznick over at ShadowTrader.net calls it – “Door #3 action. 

As to Door #3, the reference is about sideways rather than trending up or down action (Doors #1 and #2). Yesterday, we tested both of our key levels that should have brought about change (4215 on the upside and 4198 on the downside), and they didn’t. As to WWSHD, buyers should be frustrated as they had some acceptance over the start of the single print area at 4210, which fizzled.

What bothers me is that as we approach the top of the range, it feels like my grandmother slapping my hands when she caught me in the cookie jar. The selling has been aggressive at the top of the range all week, leaving us with so-called “b” market profiles. 

A “b” profile looks like the alphabet letter, where time spent, and volume is thin along the upper stem, indicating very aggressive sellers up the line. The shape is wide at the bottom, where all the rotation action settles. 

The belief is that longs are trapped, still trying to exit the market – but they need to be quick at the higher prices. While not a hard and fast rule, “b” profiles tend to appear at the end of uptrends, so carry that forward in your narrative.

Tuesday and Wednesday's S&P 500 Volume and Market Profiles with the Daily Candle Alongside - Both are Examples of "b" Profiles, with Tuesday's (the first) Profiles Being the Best Example

The 5-day EMA held the line yesterday – though just barely. So we were still in the game with the Navigator swing strategy. Unexpectedly, the Asians took us right back to the top of the range in Globex last night.

The Plot Thickens

I wrote all of the above last night before Europe opened, as I usually put my initial thoughts down early in the evening, then update them about 30-minutes before the New York open. I would have added that the Fed was jawboning the market down again yesterday – indicating that they were getting ready to taper bond purchases – or quantitative easing as it has come to be known. That put a negative quell on the market mid-day.  It is axiomatic that the Fed still holds the keys to this market uptrend.

Now we can add that the Europeans came into the markets in a sour mood. New York has followed suit pre-market. So the roll-down to 4173.50 per the “look above and fail” in our balance rules on Tuesday is now complete. 

Unfortunately, this price action has tripped our 5-day EMA stop on the Navigator Swing Strategy at 4190, and the Algo sell signal on a negative momentum divergence. A volatility squeeze that is now firing short could easily magnify the downside. It likely will make sense for the active trader to short rallies instead of buying dips from here. 

I need to mention that technically, the Algo signals are not valid until today’s candle is complete. Still, it would take a dramatic recovery in the candle to invalidate the signal. It has happened before, but it is not the most probable outcome. We have to make our decisions on probabilities, not certainty. My bias is not constructive, even though I do my best to be objective. 

For today’s trading plan, overnight inventory is nearly 100% short this morning, The S&P 500 will open with a true gap down right into the 21-day line, and I would expect overnight traders to buy on the open to take profits on their short positions. Of course, gap rules apply this morning, focusing on #2 and #4.

Unlike when the profile structure is repairing, the rotation to the low end of balance can be completed in an overnight session. We can already see buyers stepping in at that level as prices just below it were rejected recently – and we also see some positive reaction to the unemployment numbers this morning. Early trade, then, could be tricky.

Regardless of whether there is a fade or not, assume that there is overhead supply from the larger balance area above us. That means traders can sell counter-trend rallies towards yesterday’s low around 4195 given the correct corresponding context.

Should the opening drive be lower and acceptance found below the overnight low, look towards the Weekly Expected Move low at 4153 for support. That should be the worst case for the week. 

Beyond the WEM low is the 4120 balance area low. The uptrend and 50-day lines also converge there. Falling through 4120, then, would confirm that the 18-month cycle correction is underway.

While I expect a bounce at the open, I think cash is the best place to be for now, unless you want to shift gears and short rallies.

Navigator™ Signals for Day Traders

Pre-Market Outlook – 5/28/2021

AF Thornton 0 Comment

Climbing the Wall of Worry

I thought the title best described where we are in this latest rally segment that began in early March. The froth has been off the market, and some healthy skepticism has returned. But the market seems to want to go higher for now, and the pace is less frenetic as one might expect at current levels. Three pushes define a typical rally segment, and we are in the third push.

Though largely rangebound since Monday’s nice surge, I think there is a possibility for range expansion today, at least back up to the old high on the S&P 500 around 4238. That would put a nice cap on the week (and the month as this is the last trading day with Monday’s holiday). 

Regardless of any other issues at hand, always remember that the last trading day of the month can be a little tricky, as will weekly options expiration today. The reward will come next week, as the first few days of a new month are typically positive, with payroll contributions rolling into 401(k) plans. And then there is the summer rally, if we get one this year. 

As you will see in the chart below, we still have the 18-month cycle to contend with sometime mid-year. We keep that in mind for context, but the landing spot is not precise enough for us to definitively trade the mark. The computer algorithms are now projecting a July 10th low, but in my experience we are more likely to see the market peaking in late July, with the correction into the more usual bottoming months in the fall (e.g. September / October). 

S&P 500 Cycle Forecast - Yellow Whisker is 18-Month Cycle Range

The shorter cycles have been lengthening a bit lately, and that is not unusual. No doubt, all the proposed spending keeps the market propped up a bit. Interest rates have been behaving of late, but they will be back asserting full force soon. After all, deficits don’t matter.

Meanwhile, we are on the borderline of opening with a true gap higher (above 4211.50 would be a true gap). As such, gap rules would apply. Should the gap continue to manifest into the open, it is not so large to prevent a gap-and-go scenario – though I will be lightening up my long-term positions at 4238 (the old high) for the long weekend.

Overnight inventory is 100% long, so the initial profit-taking fade (as overnight traders take their winnings) is likely – though it appears they have already done so prior to the open. Don’t forget WWSHD – if there is no fade, that would be extra bullish. If the fade turns at yesterday’s regular session high, you can repurchase the first bar through the open or a break above the first one or five-minute bar. Just keep in mind that much above 4238 you will be fighting the market makers today – so don’t be too greedy.

Beyond the indexes, there are still many good stocks breaking out of bases and into new highs. Growth stocks and tech are seeing some resurgence, as are entertainment, travel and leisure names, but rising rates could put the kibosh on best-laid plans. Use a good stop, such as a close below the 5-EMA, to lock in your profits. We will continue to use the line on the Navigator Swing Strategy – which remains 100% invested in S&P 500 futures,

Enjoy the holiday weekend.

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook – 5/27/2021

AF Thornton 0 Comment

The major indices presented more trading range behavior yesterday – no surprise. We set the range Monday, finished at the bottom Tuesday, back towards the middle yesterday, and open towards the top today. 

So until options expire tomorrow, it continues to make sense to buy pullbacks one or two standard deviations below the 4200 level and sell when you are back at the level. If we break up above it, fade the upper bands back to the line. A great way to do this is to plot the volume-weighted average price (VWAP) with both sides of the standard deviation bands engaged. Anchor the VWAP to the Globex open. Perhaps you could anchor another VWAP band to the New York open after a few hours of data. I typically run it on a 5-minute chart.

S&P 500 Futures - 5-Minute Chart with VWAP and Standard Deviation Bands

Key levels above are the top of the single prints at 4214 and the all-time high at 4238. Key levels below are the overnight low and settlement at 4185. The 5-day EMA also sits at 4185 or so at the open. Acceptance below 4185 would be a potential tone change. For the Navigator Swing Strategy, a close below the 5-day EMA for more than a few hours would trigger our stop to lock in profits.

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook – 5/26/2021

AF Thornton 0 Comment

As expected, the Weekly Expected Move high on the S&P 500 (4206) is the proverbial brick wall, assisted as it were by 4200, a more typical obstacle as most ‘100 point markers turn out to be in a climb. Overnight traders accomplished little to nothing, and so we remain inside Monday and Tuesday’s ranges.

Current price and range tells us little about how early trade will react even though overnight inventory is 100% net long. That could mute any potential fade.

The overnight failure to move below settlement should be taken as bullish and day timeframe traders can assume a “buy on pullbacks” stance given supporting context, exercising caution around the 4200 and WEM high. Only acceptance below yesterday’s low at 4185 has potential to change the tone.

As June closes, the summer doldrums lie ahead. The all-time high (in the overnight market) at 4238 could be tagged on some strength, but I would fade it back to the WEM high. A trading range into the summer is a likely scenario, bounded between 4250 and 4050 with a sell-off finishing into early fall.

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook – 5/24/2021

AF Thornton 0 Comment

Not a lot has changed since Friday. Friday’s high at 4185 (also the weekly high) is the upside breakout reference for the S&P 500, and 4150 is still important downside support, as are all ’50 point references. The overnight low at 4140 will be the line in the sand today for a negative tone change.

I have already pointed out the put/call ratio flashing enough fear for a short-term bottom. While not at an extreme, the CNN Fear/Greed index supports the put/call ratio findings from an even broader perspective. With the Bitcoin froth worked off and fear rising, a lot of the giddy sentiment is out of the way.

Overnight inventory is mostly long, and while traders were able to take out Friday’s low and test the top of the single prints at 4140, they brought the market right back to the top half of Friday’s range, which is where the market will open. But since we are opening inside of Friday’s range, it is usually best to let the market prove itself and take a position later rather than earlier.

Looking under the hood, the sectors began correcting in early April, falling one by one beginning with the Russell 2000, then tech, etc. So the market has been in an ongoing correction for six weeks. The math is such that the S&P 500 does not reflect the magnitude of some of the underlying damage. All of this appears to be part of the 80-day cycle, which appears to have bottomed and means the market is ready to launch a new run.

The problem may be that with the larger cycles still peaking from above, this next run may be labored and may also peak early. That is what we need to be prepared to assess in the coming week. Already, some of the up days have below-average volume. So it is still a tough call at this point.

As always, stay tuned.

A.F. Thornton

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

View from the Top

AF Thornton 0 Comment

Wednesday Evening - 5/18/2021

Interestingly, I had been expecting the larger, 18-month cycle to begin topping soon, and likely it will. In the process, perhaps I have diminished the importance of the more minor, common cycle corrections that occur along the way. And what those corrections typically do is put in a low and then retest it about a week later. If all is well, the market progresses upward. Sometimes, the broad indexes can even mask the damage occurring under the surface in these minor corrections. Nevertheless, these corrections are minor because the sectors are not correcting in unison – lacking the correlation and capitulation associated with intermediate corrections.

Ask anyone who owns Bitcoin about this dip. At one point this morning, Bitcoin was down nearly 50% from its peak. In any other security, we would call that a bear market. Yet, the cryptocurrency managed to turn around today and finish significantly off its lows.

Holders of the QQQ or NASDAQ 100 index saw a nearly 7% decline at the trough last Thursday. The S&P 500 saw a 5% decline. Those are still rotten apples when you have to eat them.

Yet, in the context of an expected”crash” that was supposed to hit us (as divined by some leading gurus), the recent declines don’t seem so bad. We may even be entering a series of rolling sector corrections reflecting the multi-tiered market forces contrasting inflation and deflation.

Frequently, the countervailing forces result in a trading range market in the major indices that lasts for a while. Often, the market will dip below the trading range to finish the next cycle trough in the sequence – such as the nominal 18-month trough we are expecting to finish in about five weeks.

In the roadmap for day traders this morning, I pointed out the various vital levels and support at hand, especially the Weekly Expected Move lows. The WEM lines have been on the chart since last Friday. I constantly harp on the importance of these levels because they matter nearly every single week. 

How did the NASDAQ 100 and S&P 500 end today? Market Makers pushed the indexes right back to the Weekly Expected Move lows – almost to the penny. As long as the indexes stay between the Weekly Expected Low and High, the Market Makers who sold weekly premium all week get to keep their money. Outside those levels, they can lose and lose in a big way. 

Knowing this, when the market dipped below these levels and hit other important support this morning, a low-risk entry point for longs presented. It was a fabulous day to take that trade. On the S&P 500 alone, the trade was worth $3000 plus per futures contract. I like to trade ten contracts and sell the first five at a lower target to achieve break-even, taking risk out of the trade. Then I ride the other five contracts with a trailing stop and let the market decide when I should get out.

Looking at the big picture then, the bears had control yesterday and today at the open. They should have been able to drive each index down and below last Thursday’s lows. They couldn’t get the job done.

For the Navigator Swing Strategy, the market gapped open and underneath our stops. Traders had every incentive to drive the market down to and below everyone else’s stops sitting under Thursday’s lows. If nothing else, the order flow alone is profitable for them.

In fact, the lows came in higher on the S&P 500, NASDAQ 100, and Russell 2000. And the bottom line is, the bears had their chance and blew it. At that point, I am buying S&P 500 futures in the day trading account, so why take the Navigator stops? Granted, this is the exception to the rule. So I waited for the close and stayed the course.

Now buyers are back in control with a very successful retest under their belts. We shall see what tomorrow brings and I take nothing for granted as the market has had a few surprises in store lately. But today was a good day for the bulls, having been on their heels at the open.

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook – 5/13/2021

AF Thornton 0 Comment

This morning, I woke up from a dream that Jimmy Carter was still President. Maybe I was subconsciously triggered by yesterday’s gas lines and the rising inflation. Does anyone remember “wrap-around” mortgages? How about Ted Kopple and day “_____” of the Iran Hostage Crisis? And then there was the beginning of the end on Sunday, August 15, 1971. President Nixon announced that the United States was abandoning the Gold Standard on that hot, Sunday, summer evening:

“The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world.

In the past seven years, there has been an average of one international monetary crisis every year …

I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.

Now, what is this action—which is very technical—what does it mean for you?

Let me lay to rest the bugaboo of what is called devaluation.

If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.

The effect of this action, in other words, will be to stabilize the dollar.”

Well, it eventually took a Fed Funds rate of 18% to stabilize that dollar, tricky Dick! And Jimmy Carter, though I disagreed with his politics, never stood a chance. He is a very decent man. But Nixon, having laid the groundwork, dealt President Carter a lousy hand. And to think, the world was panicking over the Vietnam War deficit spending. Weimar Germany, the Great Depression, and the world war that followed were still very real experiences to that generation. What would that crowd think of our debt now? Perhaps death is kinder than we know, laying that generation to rest before these times. One thing is for sure, as far as we know, there has never been a complaint from the grave.

Sometimes, it is simply the luck of the draw as to the timing of a presidency. Land on the wrong cycle, and your fate is cast. But when all of this is said and done, August 15, 1971, will mark the beginning of this country’s end – at least as we knew it. With the current debt, deficits, and unfunded liabilities, it is difficult to believe that the United States will avoid the downfall of every other fiat currency in history. Perhaps we will all be studying Mandarin soon.

Today’s Plan

We have overnight inventory balanced in the S&P 500 futures. We will be opening towards the top of the overnight range, with prices having explored slightly lower levels from yesterday’s close. Treasuries were flat overnight and have yet to respond with a routine, correction-based flight to quality. Treasuries seem to be pacing the S&P 500 index, a somewhat unusual correlation.

With opening inventory balanced and prices opening inside of yesterday’s range, there is little to guide us at the open. On the daily chart, prices are close to 3 ATRs from the mean and sitting just a hair below the 50-day line. Price also sits on the intermediate trendline and on top of a gap from April 5th. All of this (plus short covering) should lead to a meaningful bounce here. If so, any recovery should lull less experienced investors into complacency. You know, “don’t worry, everything is fine, dear.” If we don’t bounce this morning, carry that forward as another chink in the armor.

In a failure to bounce, we enter the April 5th gap and volume air pocket down to 4014. Given the S&P 500’s affinity for hopping in 50-point increments, it is a short step to 4000. The market could bounce there. If not, additional support lies in the 3925 to 3975 range – with 3950 (the next 50-point increment) as a good target. The 21-week line, also critical support, sits at 3940.

I am a bit torn in my outlook this morning. The put/call ratio spiked yesterday to a level not seen since the November election. The ratio suggests a lot of accumulated shorts, and they are a fickle crowd. It does not take much of a rally for them to panic buy and cover their positions. 

On the other hand, the retail crowd may just be waking up to the fact that a precipitous correction is underway. The late arrivals could aggressively sell any rally attempt today – taking us back down the aforementioned ladder. 

The likely compromise between the two opposing forces, especially coming off three days of expanded range, would be a balancing/trading range day inside yesterday’s regular session range. Responsive trade later today from the established range would be the likely, best trades.

The new overnight swing low is bearish, at least partially testing the unfilled early April gap. But regular session activity is the only activity that really counts in a gap fill.

Note that the market has started to pay attention to rates again as the recent tech weakness recoiled from higher rates and infected the indexes. Keep a chart of the TNX handy.

As long as prices hold within yesterday’s range, I am a responsive range trader today. Should prices get out of range to the downside, I will target the overnight low first and then look to the full gap fill outlined above.

Good luck today.

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook – Update (Charts Added) 5/12/2021

AF Thornton 0 Comment

11:35 am EST - S&P Futures 4082

It has been quite the battle this morning, and bears have managed to tip prices below yesterday’s low and the overnight spike low from the CPI report. The tempo is unusually labored thus far. 

Also, the S&P 500 and NASDAQ 100 are breaking their trendlines at current prices. The S&P 500 is trading below the balance area low we identified yesterday at 4115. Notably, the day is not over, and things can look completely different by the close.

At current levels (and we don’t know if participants will accept prices here quite yet), the Dow (which had kept the stock markets propped up until the last minute) is now trading below its 21-day line. That means all four major indices are now operating in unison (S&P 500, Nasdaq 100, Dow Industrials, and the Russell 2000), below this key reference line. 

Also, this morning, one of Sentiment Trader’s risk-off models has flipped to defense. Again, all of this is preliminary but helps build the case for the intermediate, 18-month cycle peak we have been expecting.

There is a lot of chatter about ending unemployment benefits early so that workers are motivated to accept an apparent plethora of available jobs (at meager wages). Chatter about the Fed being way off the mark on inflation containment causes market participants to anticipate a change in Fed policy, no matter what the current policy statements may be.

Think of current Fed policy as the punch bowl at the party. Everything changes if they take the punch bowl away. Having said that, the longer they wait, the worse it will be for the markets when the bubble bursts. 

Of course, this assumes that the Fed does not want inflation. That is a huge assumption for a Federal Reserve that has cozied up to the U.S. Treasury – which now has a massive debt (and wants to add $4 trillion more). Believe this – either that debt has to be monetized (inflated away), or the U.S. will risk a default, either outright or by robbing entitlements such as Social Security or Medicare.

As I indicated yesterday, I have been experiencing that vertigo feeling lately – an uncomfortable feeling that we are not on solid ground and our country has lost its footing. I still feel like I am working on the top floor of a tall building. Everything looks fine working on my floor, until I look out the window and it is a long way down.

A.F. Thornton

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