Category Navigator™ Signals for Day Traders

All market references below refer to the S&P 500 Index Continuous Futures Contract – 24-hour Session.

Oil has been my “One Thing” lately. I always try to find one thing that tells where we find ourselves in this crazy environment. Oil has fallen more than 20% in the last month – otherwise known as a bear market. It looks like there is some accumulation around the $65 level. But the implication is that the markets expect the China Virus insanity to continue and negatively impact the economy. It is already starting in Europe, and they can ill afford any more policy mistakes. Neither can we.

Prices at the pump should begin to fall. Perhaps this will lead to a peak in inflation. Why? The crash in oil / gas-pump prices tells me that the policy errors by the Federal Reserve may now lead to faster tapering – and deflation. They will need to be the most skillful Fed in history to avoid an asset implosion and debt crisis. Demand should wane – right as supplies skyrocket. What timing!

But this crash potential has me doubting whether they are really going to taper or raise interest rates. They could be jawboning us. That may be all they can do to avoid the inevitable reckoning ahead. Perhaps this latest virus salvo is part of the engineering to do the Fed’s job for them, leaving the politicians blameless.

Let me also say that this is the most serious conundrum any Fed has faced in my 34-year career. They have inflated assets and now goods and services at the expense of the lower and middle classes. Is it any wonder that there is a wealth gap? Is it any wonder that there is so much unrest?

Oil is telling us a recession is possible in 2022. If so, look out below. And since the powers that be had already taken the “Great Recession” label for the last debacle in 2007-2008, let’s coin a new phrase. How about Armageddon? It will seem so when the piper has to be paid.

It was only a week or so ago that I was waiting for the breakouts in the Dow, IWM, XLF, and DBC to retest, and I had my finger on the trigger. All three indices crashed through their retest levels and now sit back at the bottom of their trading ranges. It is a “Look Above and Fail on the daily charts per our Balance Rules. It is also a notable reversal from a final bull flag.

My thoughts continue to be that this latest virus scare has been engineered. See the real story here (forward to the interview with Dr. Robert Malone, inventor of mRNA). I have discussed the disconnect of the latest virus to reality in previous writings. It is Mass Formation Psychology at work. The question remains, who is running the program?

Speaking of Mass Formation Psychology, all major indices are on support and should bounce here. The spikes in volume and negative sentiment support a bounce soon. The S&P 500 finally tested the 50-day line and the weekly mean. But the index still struggled to overtake the 5-day line all day. It may be worth a swing trade for a very aggressive trader here.

However, we do not have a Navigator buy signal as yet. Given the vertical bear candles behind us, I expect a minor reversal before we roll over again, at least for a retest of Tuesday’s low. And all I am doing right now is scalping/day-trading. I lay out the roadmap here every morning. Follow it, and you will wrap up your day with a smile.

To understand my approach, all one needs to do is look at last week’s overnight thrashings before you awakened. That is why I avoid overnight (weekend) trades unless I plan to stay up all night. With the VIX trading over 20, it does not make sense to hold overnight.

At the risk of being too negative, I will also disclose that I see the same setup now that preceded the March 2020 virus crash. When we get the Navigator sell signal and any such setup, I can never predict the magnitude of the decline except to ascertain the current cycle at work.

The 80-day cycle seems to be the culprit right now, and we don’t typically see crashes on that cycle. Contrast that with March 2020, when the 9-year and all lesser cycles were overdue. The greatest uncertainty is whether the 18-month cycle bottomed in October. That could be the wildcard. In fact, I warned you about this late November dip on August 30th, more than three months ago! Who says I don’t have a Crystal Ball?

Swing Traders

The check is in the mail. I will let you know.

Day Traders

Closing above yesterday’s high at 4693.75 gets the ball rolling north, but it will be a rocky road with the five and 21-day lines to conquer up to 4620. Taking out yesterday’s halfback at 4550 brings doubt to the table. Markets love to retest new lows, or at least attempt a retest in the first five trading days. Keep that in mind if we are in the southbound morning lane.

The WEM low is at 4445 if the market really wants to put on a show before the weekend, but I doubt we could tag that level this late in the week. I am more in the bounce camp than another spike low. But I am not infallible – Crystal Ball and all.

I will update any necessary comments and levels after the employment report in the morning if required. Otherwise, I think the roadmap is clear right now.

A.F. Thornton

If valuation matters, there is no precedent for where we find ourselves. The Wilshire 5000 to GDP Ratio, Warren Buffets favorite benchmark, exceeded 214% at last week’s peak.

At the 2000 market top, the number was about 139%. At the 2007 top, it was just above 100%. Even before the China Virus crash in March 2020, the number was 150%. When these markets corrected, the number rolled back to the 50% to 60% range.

As you know, the NYSE index erased seven years of gains almost overnight when the China Virus went mainstream a little more than a year ago. And it isn’t just the overvalued stock market, which is why this is called the “Everything Bubble.”

We all know this won’t end well. More money has gone into stocks in the last year than the last 20 years combined. We try not to think about it until there is some negative, vertical price action. Then it is like, “right, this is the stratosphere.”

Perhaps most concerning is that the market has become more a function of the Fed’s balance sheet than anything else. The correlation with the S&P 500 Index and the growth of the Fed’s balance sheet is nothing short of stunning.

Market participants look to the Fed rather than the economy, earnings, or other fundamental factors. So when the Fed talks about slowing the growth of the balance sheet by tapering their latest Quantitative Easing program, you can understand the market’s negative reaction.

Typically, the bloodbaths usually occur on the four-year cycle corrections. In our case, that would be a trough in 2024. Sometimes, we can start into such a decline a year early. Starting now would be very, very early. But we could certainly start with a trading range as the Fed tapers the balance sheet. And Chairman Powell admitting the obvious, that the recent inflation isn’t transitory, has the market anticipating a relatively fast taper.

Swing Traders

We are in the zone for a minor reversal. We are trading around the 50-day line and the channel that started from the correction about this time last year. Smart Money confidence is climbing to 80%, while fear indicators continue to rise. Both indications are positive for a short-term low.

Due to the size and velocity of the bear candles over the past week, I expect any reversal higher to be minor. This does not feel like the instant gratification pullbacks we have recently experienced. We need to be very, very careful here and watch for market-generated information. Turn the TV off.

I am reminded here of our good friend WWSHD (When What Should Happen Doesn’t. We normally see strong cash flows and positive returns the last few days of the previous month and the first few days of a new month. It is not happening. We are in the strongest seasonal period for the stock market from Thanksgiving to Christmas. So far, Santa Claus is missing in action. As I often counsel, success in this arena is more about watching what the market isn’t doing rather than what it is doing.

Swing Traders should continue to await my signal when the Navigator Algorithm flips the lights back on. So far, we are not there yet, but we are in the zone.

Day Traders

Spike Rules are in play this morning. Acceptance within the spike is bearish, which is where we are starting this morning. But like yesterday, traders were somewhat short in the hole at yesterday’s close, given how far away the settlement was from value and the POC.

While we are slated to open well below the Globex high, there is still potential for corrective activity early in the session. How much will be very important MGI.
Moving below yesterday’s low on faster tempo and bearish internals puts the gap and next VPOC (Key Levels) into play as targets.

The top of the gap is 4487.25, the bottom is 4479.75, and the next VPOC is at 4471.75. But remember there is about a 20-point area around the 50-day line and the channel trendline coming up from last year at 4530 or so where bulls and bears will battle out support this morning.

Overnight inventory is net long, so there could be some profit-taking at the open regardless of the ultimate direction today. You may want to sit it out for a bit until the market takes a final direction that you can monitor for continuation. The market is oversold here, at least for the very short term.

Good luck today.

A.F. Thornton

All references to the market relate to the S&P 500 Index Futures continuous contract, 24-hour session.

Traders finished yesterday’s session short in the hole, but also at a Fibonacci 38.2 retracement from the recent market top – a typical bounce point. Unsurprisingly, then, overnight trading was net long as there likely was some buying and short-covering.

That also gives us an orthodox gap higher this morning, meaning the gap is still within yesterday’s range. Fear gauges are high (which is getting bullish), and the market is looking short-term oversold (also bullish). All in all, a bounce is in order today, and then some balancing (sideways) action.

Swing Traders

Your day is coming, but continue to hold for the Navigator Algo to conjure up a buy signal.

Day Traders

I promised you a volatile week on Monday, if for no other reason than the Weekly Expected Move is double any typical week. Today is December 1st, and fund flows should be positive over the next few days.

But the monthly candle turned out negative for November, casting a negative pell over December. The cycle bottom stretches into mid-December, so any relief rally could be short-lived. Be sure to mark the monthly RTH session open this morning on your charts – it will be important this month.

After the spike higher, look for a potential balancing, inside day today and trade the extremes of the value area if the market is so inclined to deliver the sideways action. Use the halfbacks at 4600 from yesterday and overnight as your bull/bear threshold today.

Your first downside target is the overnight low at 4571.50, then the RTH low at 4557. Traders have been trying to push the market into the 50-day line around 4530 for three days, but the market does not seem to want to tag it. Nevertheless, keep the line on your radar.

Upside references begin to shift to the five and 21-day lines, both hovering around 4635 or so. Those lines have to be conquered on a closing basis to put the bull back on the table. There is a downtrend line converging on the two lines as well, so this area will be tricky, and it might be best to sit out the battle. In recent 80-day cycle declines, this same area has been a bull trap, so be careful.

Good luck today. Instructions for tomorrow’s trading room will follow later today.

A.F. Thornton

If nothing makes sense to you right now, you are not alone. We are all victims of Mass Formation Psychology, and it is no accident. It is a PsyOps operation likely conducted out of the leading, left-wing, behavioral think tanks at the behest of the Davos totalitarian cabal. Dr. Mattias Desmet has the best handle on this and the best explanation I can find. It is worth a few minutes of your time to listen to his analysis here. Mass Formation Psychology is genuine, and the future of our Republic is at stake.

And that is the best introduction I can give you as to why the market is struggling in the wake of a new strain of the China Virus that is (i) milder than its previous cousins and (ii) just as vaccine-resistant. When one of the Big-Pharma cartel chiefs announced last night that it could take months to develop a new vaccine, the market dropped precipitously. That’s right; a less virulent strain of a virus that is already vaccine-resistant with a 99% survival rate is tanking the market.

Now, I am fortunate enough to have a brilliant reader base. You are not so easily distracted. You already know that you must keep your eye on the ball. The problem at hand is less about the new virus strain and more about the overvalued market. Fed policy is becoming less friendly. And even if the problem is about the virus strain, the market is focused on how governments worldwide will use the event to implement more authoritarian totalitarianism that could negatively impact corporate earnings. In other words, think of the theme “the cure is worse than the disease,” and you will be close to the truth about the market’s concerns.

Of further note, the stock market just triggered the “Hindenberg Omen” and its cousin the “Titanic Syndrome.” I won’t bore you with the technical details; know that we have a combined 12 triggers in a few days. It has been rare to get a cluster of such signals in the last 25 years. Historically, medium-term returns that have followed such signals have been, shall we say, challenging?

Swing Traders

Swing traders should continue to keep their powder dry until our Navigator Algorithm conjures up a buy signal.

Day Traders – Key Levels

Day traders had nearly a perfect roadmap yesterday, though we never quite reached our initial turn target in the morning. The day was strong for the Monsters of Tech, which helped carry the NASDAQ 100 and S&P 500 indices higher.

In a perfect world, that might have been a good thing. But this is not an ideal market. Other indices, such as the Dow and Russell 2000, were anemic. So the broad market continues to diverge from their big-cap brethren. We need more to turn the tape around.

Day traders should be aware of the monthly open for November at 4608. The monthly candle turns red below that level, and we tagged 4608 again overnight. Other than that, know that Friday’s low was 4577.25, yesterday’s low was 4588.75, and last night’s low was 4582 – smack in the middle.

On a positive note, the overnight sellers lost traction at 4582, and we are trading around overnight halfback at the open. On a negative note, this is the last day of the month, and we might trade around 4608 as bulls and bears battle it out for the candle color.

Also, note that we have a true gap lower and gap rules apply this morning. Start there as there is significant M.G.I. associated with how the market handles this gap.

Use Friday’s low at 4577.25 as your line in the sand today. Recall that the 50-day line is the next signpost below that at 4529 for a first downside target. We can stay optimistic above Friday’s low and preferably above 4600 and 4608.

Target yesterday’s high at 4669.75 for the bullish case. But remember that we need to get through the 21-day line (mean) at 4641 first to truly turn the tape bullish again and have a chance at taking the 4669.75 level.

While noting all of the specific numbers above, watch your downtrend and uptrend lines as they often interfere with hitting exact targets. Remember, we might be in a trading range or triangle for a few days before the market resolves anything. Also, this is the last trading day of the month, which can lead to some anomalous trading as institutions adjust their portfolios.

A.F. Thornton

As always, all market references below are to the S&P 500 Index Continuous Futures Contract, 24-hour session.

The Deep State Davos dictators, Joseph Goebbels–trained media conglomerates, and Silicon Valley techno-fascists ran a trick/trap operation last week because they had lost control of the narrative. Courts overturned, and companies reversed mandatory vaccine policies. OSHA had to abandon its compulsory vaccine rules. President Brandon’s approval numbers had dropped below those of any modern President. Build Back Bankrupt was struggling to pass the Senate. The crowd was no longer buying less freedom and more government.

The Brandon junta had to rejuvenate fears and shift blame. Voila – the Davos crowd dropped another of (many more to come) Covid variants on the Thanksgiving table while families were gathered around to stoke the fire, and the financial markets were vulnerable to potentially light volume and a half trading day. Anything to keep the little people off-balance. Keep in mind that the mild Omicron variant had been around for two weeks. Yet, the W.H.O. had to inject the “emergency” into the news cycle on Thanksgiving evening?

There are no coincidences. The insiders made a fortune on this market operation last Friday. But the damage has been done. We have to determine if this morning is a dead cat bounce or if the animal is merely wounded. By the way, what is the new narrative? The new (but milder) Covid variant might be “vaccine-resistant.” Really?

The hard data shows that all of Covid is vaccine-resistant. Anyone paying attention knows the vaccines have become practically useless on the core virus and its variants. Running a scam like this would put most of us in jail – not on Billionaires Row.

Emerging evidence also shows the vaccinated may be worse off than the unvaccinated when all is said and done. Two years of this psychological operation to introduce Totalitarian Rule is more than enough. We are all sick and tired of it – and we are tired of Komsomol Fauci too.

Rejecting the latest Covid lies, savvy stock market participants have been buying all night, and the market is recovering significantly this morning. Already, the market managed an orthodox gap open in Globex and climbed up to the bottom of Friday’s gap down at 4642.75, now the Globex high.

All told, the market has already recovered a little less than half of the decline from the new, all-time high at 4740 achieved about a week ago. For now, we have to assume that a lot of this overnight buying is short-covering. Whether or not genuine buyers are at hand remains to be seen in the next few sessions.

The “One Thing” has shifted from bonds and interest rates to oil. Oil nearly collapsed last week, falling to $67 a barrel from $85 in late October. That could indicate that the recovering economy will sputter, and inflationary pressures will decrease. Oil is now THE barometer of economic recovery.

Do you remember April 2020? The price of oil futures dropped below zero. Falling oil prices, along with falling interest rates, may reinvigorate the stay-at-home trade and NASDAQ 100 index as commodities and financials wane again. It is too early to tell – but I would still keep an eye on the DBC, IWM, DIA, and XLF, though I believe that oil’s collapse is a game-changer. Watch sector fund flows carefully this week for clues.

Swing traders need to warm up their “Enter” keys here and stay alert for my signal. There is no draconian downdraft or major cycle due now. We were declining into the nominal 80-day cycle trough when this operation hit.

Over a month ago, I had already pointed out that we needed to expect some late November weakness into this trough. We now transition into the last few days of the current month and the first few days of the new month. These days are primarily bullish for 401(k) payroll cash flows into the market. The Santa Claus rally is also on the docket in early December.

If anything, a trading range could finally be upon us. But before making too many judgments, I want to see how the market navigates this retracement of the recent decline in the next few sessions. The Navigator Algorithm kept Swing Traders out of this decline, so let’s allow it to bring us back in at the appropriate time.

Day traders should first be aware that the short-term bias has shifted to bearish as long as we stay below the 21-day line at 4642.75. Also, the expected move (at double recent levels) anticipates a lot of volatility for this coming week. This coming Friday’s expiration contemplates a 135 point move in either direction from last Friday’s close.

Also, keep an eye on the November monthly candle open at 4608.25. Falling below this level will accelerate any decline. The level will dictate whether November’s candle is green or red, asserting some influence on December’s prospects and whether or not another new high can be achieved before year-end. A red candle would indicate that the breakout from the September/October outside, outside pattern is failing.

We are otherwise in a period of seasonal strength, and day traders should be looking for market-generated information for guidance. Sellers lost hope of lower prices from the gap open last night, so they are currently on the ropes.

On the upside, how far can we invade Friday’s gap-down today? On the downside, how far do we invade this morning’s orthodox gap higher?

Friday’s gap down starts at 4643.25, but overnight trading found resistance just below at 4642.75, now the Globex high and also the 21-day line and mean. These are vital levels to overcome if Friday’s decline was a one-off, news-driven event. Mark this morning’s open for the top of today’s gap higher.

Again on the upside, conquering 4650 for at least a few hours (as a half-roundie and the five-day line) is bullish and puts the Navigator on a buy-alert status. It is a lot to ask the market to take these levels out today, as Friday did severe psychological damage. Also, it is not unusual to see a retest of Friday’s low about a week out – though most lows since last year have been “V” reversals.

Cutting to the chase, I will stay optimistic above the overnight halfback at 4615.75. Overnight inventory is 100% long, most short-sellers have covered, and there is a 70% chance of a fade at the open. If there is no fade, assume an initial, bullish bias but expect strong resistance around 4650, and then on to a complete gap fill up to 4700.

On any opening fade or a reversal from 4650, I will be looking to go long at the overnight halfback at 4615.75. Looking doesn’t mean doing – it is where I will look for confirmation of a turn. Below 4615.75, my next “look” will be at the Globex low of 4688.75. But even before that level, short positions become more attractive if we fall through the November candle open at 4608.25.

I will have more later and an important announcement about the new, live trading room officially launching on December 1st.

Good luck today.

A.F. Thornton

Bickering over the latest gargantuan spending plan out of Congress overnight seems to have torpedoed a 25 point rally in the S&P 500 index during the Globex session. The index achieved a new, all-time high of 4723.75 before backing away after Europe opened. Not only did the rally reverse, but the market also went back down that 4700 hill that overnight traders had conquered, following yesterday’s regular session, which saw a turn higher after selling off at the open. The market is trading at 4687 at this writing.

Last night’s highlight was an 8 hour plus floor speech by house minority leader Kevin McCarthy, the longest on record. For now, the vote has been delayed, but the stock market is not waking up happy. The overnight range was 40 points and absent a turnaround before the open; we will gap down (not a True Gap) to the bottom of the range. The low of the range is 4685.

Today is monthly and weekly options expiration. Next week is the holiday trading week, which is likely to have light volume. I will be out next week, so there will be no outlooks until next weekend. Trading could be difficult today, with monthly and weekly options expiration and the Washington D.C. rhetoric. Need I also mention, there is a lunar eclipse today. Perhaps that is the explanation for everything. Put on your Tin Foil Hat for that one.

We don’t see many Globex sessions like this. If you are a swing trader and holding, I would be reticent to hold if we close below yesterday’s low, which sits near our old, reliable, downside reference point of 4667 (4667.75 to be exact. Closing candles above yesterday’s high at 4705 might give us a chance to visit the all-time high established overnight at 4723.75. It is rare for an important high to be established in Globex and not eventually revisited in the regular day session. Can we do that today? I really don’t know.

In fact, this is one of those sessions where (given the options expiring and the Washington D.C. battles) it is tough to call. Maybe the whole country needs a holiday. It has been a strange 18 months for all of us. I always remind myself that we have more in common than differences if we would admit it from time to time.

Have a great holiday!

A.F. Thornton

I give you a lot of information every morning. But how should you use it? I know it isn’t easy. I have done this for many years, and it is still tricky at times. But you can do it if you follow a set of rules – namely “your” rules as you develop them over time. That is a subject for another discussion.

This morning, for example, I look at the daily chart, and I see a labored advance in an overbought market. The rally yesterday and this morning occurred on weak internals. It was a tech thing once again. The tech generals advanced, but the soldiers remained at the base camp. That makes it difficult to take the hill at 4700 (470 on the SPY).

But I also remind myself that we bottomed a minor cycle on the 10th, and we are in a period of seasonal strength for stocks. The market often rallies a bit before the Thanksgiving Holiday. Also, the market has been in an uptrend overall. I use this context to resolve any doubts in favor of higher prices.

When you drill down to the hourly chart, you see a head and shoulders reversal pattern to go higher, which broke out Tuesday and was retesting at the close yesterday. The right side of the pattern is in a triangle.

Whichever way the triangle breaks is your guide to the initial direction. And, to make it interesting, you have to watch for a fakeout. That means you not only have to wait for the breakout candle to close, but you should also wait for the close of a follow-through candle. That reminds me of the axiom; the more confirmation you have of a turn, the greater your risk to stop under the swing low out to your left.

Once the market takes a direction, you always have the overnight high/low and yesterday’s high/low, as applicable, to conquer. That is always the case. But each morning, I try to highlight the most critical signposts I will be watching in my daily plan, which may be these or other levels. I am looking for the price where I believe a cluster of buyers or sellers will show up. Sometimes it can be several levels close to each other, setting up a small range of support or resistance.

That is what trading is all about. You project where the buyers or sellers will show up and use that level to get on board when a pivot occurs. A “pivot” means that the price stops one-time-framing higher or lower as the case may be.

Say the market is falling. Once you have a candle that has a higher low and higher high than the candle to your left, then a pivot is usually at hand. When that occurs at one of our previously identified levels, you have the recipe for a trade. And it is the same in any time frame.

There is more to the story. You have to have a target and understand measured moves. But you can learn the techniques. How each candle behaves in the progression gives you hints about trend strength. For example, how far does the next candle invade the previous one? If it isn’t much, you have a strong trend and vice versa.

Today, I am slightly bullish but also cautious based on the weakness of the last few days and the overbought levels on the daily chart. What does “overbought” mean?

Plot the 21-period Exponential Moving Average (EMA) on your chart in any time frame. Looking at the chart visually, you can see how far above or below the EMA price has traveled. Over time it becomes evident when the market gets too far away and needs to snap back. I could trade any day plotting that line alone and knowing my key levels.

I always do my best to keep an open mind. The chart above is the hourly chart of the SPY. Add a digit, and you have a similar futures level. But let’s go with the SPY for now. You have a strong support zone from 466 to 467.50. The initial breakdown target from Tuesday’s high is 466, but we could see a pivot around 467.50 first (roughly 4670 on the futures).

Out to the right on the chart, you will see the volume at price in a sideways histogram. Wherever the peaks occur is a volume cluster that the market needs to climb over. The market usually finds support or resistance in the valleys surrounding each peak. To progress, the price needs to move through the valley to the next ridge. When I write about “acceptance,” I am referencing this progression. The volume and time at price help to guide you as you navigate to the identified support lines.

Note from the chart above that the market closed yesterday on the hourly 21-EMA and daily 5 EMA. The red dotted line is our 5-day EMA stop line from the daily time frame. To head south means we take out those two crucial levels. Closing candles below yesterday’s low at 467.40 (4670 on the futures) also ends the one-time framing higher on the daily chart. That is a significant change in tone and your line in the sand today. Translate that to your five-minute trading chart, and it will be a steep fall and an excellent short.

Of course, the best short is where the market already pivoted lower above, but the market ran out of time for a day trader, and, usually, I’m not particularly eager to hold overnight. Things can change by the morning, as they already have today. As mentioned the past few days, the market is not at a safe level for swing trading long, and it is too soon to establish a confident swing trade short.

A pivot higher and breakout above the triangle requires conquering the red resistance lines marked on the chart above, which takes us back up to test the all-time high, which essentially requires taking the hill at 470 (4700 on the futures). From there, you could ride the reversal pattern measured move up to 475 (4750 on the futures). So you target that range and see how the market behaves.

Remember, the market likes to travel in 50-point increments at a time before it consolidates again. So 4700 (470), 4750 (475), 4800 (480), etc., are always vital levels. Take everything off your chart, and mark those levels. Then step back and look at your long-term chart. You will see what I mean. Price pauses and clusters around those prices.

So now you see my plan for the day. The only question is whether the overnight trading gives me any clue as to how the market will open and whether to trade earlier instead of later. The market will gap higher at the open. It will be a true gap, so Gap Rules apply. With the imbalance of buyers and nearly 100% long inventory overnight, there will likely be a fade at the open. How the market handles this fade tells you a lot. No fade; it will be a strong day and time to get long. Slight fade and a move back through the open also begets strength. Gap and crap? Well, not so good, right?

The market starts bullish this morning, slated to open above 470 (4700 on the SPY). We need to close candles above that level to have the best chance of achieving a new, all-time high.

Good trading!

A .F. Thornton

The stock market consolidated yesterday and overnight after Friday’s pivot from the minor cycle we discussed. Of course, most pivot lows are retested, except in the rare case of a “V” bottom. So that is the question on the table before Friday’s weekly/monthly options expiration, which has tended to be somewhat of a mid-month magnet for the monthly stock market low. Are we going to retest, and will the retest be successful?

Assisting the consolidation have been some weak bond auctions Friday and yesterday. Rates have pushed higher, along with Gold and the U.S. Dollar. Gold rising makes less sense than the U.S. Dollar rising on the heels of higher rates. Weak bond auctions could be the headwinds holding stocks back a few days. Some of the behavior hints at risk aversion, so we need to be careful.

But the Commitment of Traders report on the futures market also shows a large crowd short the bond market and betting on higher rates. I always get nervous when the crowd is lopsided in either direction because the crowd generally turns out to be wrong. We could get a significant drop in rates if everyone goes to cover their short positions simultaneously.

On top of that, consumer and small business confidence have crashed. Apparently, the rest of the country outside the D.C. bubble is not celebrating the new administration’s policies and results. Go figure? But the crash in confidence is not good for the economy or stock market. A slowing economy also could mean lower interest rates. But then there is that stubborn pattern pointing to higher rates. What is a trader to do?

Swing traders should remain in cash here unless or until we get a more significant pullback or some other confirmation that another leg higher is truly at hand. Reward and risk are lopsided. A double top remains on the table, and even if a new high is at hand, I have a hard time seeing a target any higher than 4740. There is nothing like buying the peak as a swing trader.

Day traders have a better chance at these levels either way. Our overnight cousins were unable to test either end of yesterday’s range. As I had suspected, 4667 was the line in the sand in Monday’s session, and it held. So I have more confidence today in emphasizing that 4667 is more critical than ever to maintaining the very short-term bullish case.

Dropping through the 4667 level would be a nice short if there is enough time left on the clock today. Tee up the trade if we take out the overnight low at 4671. An excellent first target would be Friday’s halfback at 4664.50, then Friday’s low at 4645. Remember that any time you are trading around a half roundie like 4650, it may override any other influence and provide support.

If the market can get above the overnight high at 4687, a long trade might make sense using the cluster of POCs around 4680 as your support and stop. Then you could target yesterday’s high at 4693, moving up the food chain to Thursday, Wednesday, and finally Tuesday’s highs until traders conquer the all-time high around 4712.50. 4740 then becomes your final destination. Keep in mind that if the buyers step in, the market is likely to blow through these upper levels fairly quickly as it moves into the new high territory. Also, 4700 is a roundie and like half-roundies, these numbers provide support and resistance in addition to anything else in the neighborhood.

The trick to all of this is that the market often reverses course from its initial path. It is coming through these levels from the opposite direction, especially on a morning reversal, that conjures the best trade. An excellent way to start is to mark the open on your chart. After the market reverses and comes back through the open, look to trade in that new direction with the parameters above.

Also, never forget to mark your opening range (after the first reversal). Project the range (measured move) in both directions and look for the breach to the appropriate target. Often the level will coincide with one of the critical levels identified above.

Yesterday was a perfect example. When the market breached the opening range, it made the measured move, also the 4667 level that I had already identified pre-market.

In a balancing market, the best trades come later rather than earlier. The tone of the overnight session is balanced – and that likely sets a similar tone for the morning.

So that is how we make sausage around here. Good luck today.

A.F. Thornton

Apologies the commentary is running late today. Apparently, we are part of a rolling blackout in the Peoples Republic of Southern California this morning.

From all appearances, the minor cycle we had been discussing bottomed Friday with a short-covering rally, as often happens. We have some follow-through this morning in the form of a true gap higher. As such, Gap Rules apply this morning. Review them; they tell you what you need to do from a trading perspective.

Beyond that, keep in mind that the market is trading off the 3 ATR boundary from last week. Markets don’t spend much time this overbought before moving sideways or down. Other than the overbought levels and blow-off insanity, nothing indicates that the stock market is internally weak or compromised.

So your focus should be on the bond market. It is the proverbial tail that wags the dog. We still have a slow-moving pattern that would imply a doubling of the 10-year interest rate. The market could get past such an event, but it would be a rough ride. Again, a trading range is a likely outcome, if not worse.

Swing traders should still be holding cash. Day traders can use the afternoon low from Friday at 4667 as today’s bull/bear threshold. The all-time high at 4711.25 is in play today. It should be a battle, however, and a potential double top should be in your narrative.

A.F. Thornton

The market is keeping it simple today after a quiet, balancing session on the holiday yesterday and overnight. Above 4658.25, we have a chance of turning this market back north. Below 4642, we head south again to test recent lows. We are trading slightly above 4658.25 at this writing which implies a tiny gap at the open.

We have the mean (21-day Line) sitting down around 4650 and the breakout from the previous-time highs at 4640.75. These are both magnets and areas where the market should find support if we break down out of the two-day balancing range.

This is a time where staying keen on the bond market pays dividends. We still have had bonds, stocks, gold, and the dollar rising together. That is not only rare; it could be a warning of a black swan event ahead.

Swing traders should be in cash, waiting to deploy into the IWM, DBC, and Financials if the bond market stays under pressure.

Day traders, you have your levels for the day. Watch for liquidation breaks and remember that yesterday’s low is weak. Look out for the possibility of the market forming a trading range for a few weeks to digest recent gains.

A.F. Thornton