Category Navigator™ Signals for Day Traders

Morning Outlook – 4/6/2021

Our primary day-trading vehicles are the NASDAQ 100 or S&P 500 futures, though we can apply the principles I discuss here to stocks. We ask ourselves three questions every morning – questions I would originally credit to Jim Dalton ( and Peter Reznicek ( First, are we opening in or out of balance? Second, is overnight inventory net long or short? Third, where are we opening within the entire overnight range? The answers drive my opinion about whether or how to trade the open, or perhaps wait for a trade later in the session.

Balance is defined by both the prior day’s regular session range and any larger, recent balance area that may be present. I determine balance by looking at the recent Volume and Market Profiles for the applicable index or security. You can also look at a traditional bar or candlestick charts and draw lines/rectangles around visible trading ranges or the previous day. I don’t find drawing lines or rectangles to be as accurate as using the Volume or Market Profiles.

Typically, old business is always conducted before new business in the financial markets. The overnight traders’ positioning tells you if they will take profits on their long or short positions at the New York open. Whether you can have faith in the opening drive direction in the markets can largely depend on what these overnight participants need to do with their inventory. The opening drive can easily reverse after the overnight traders deal with their inventory and profits.

Today is a good day to take a look from 30,000 feet and revisit our ongoing narrative. Contextually, we continue to rise out of the gates of the 20-week cycle low (March 5th) and the retest of that low on the 20-day cycle loop (March 25th) – this is bullish. Besides the positive fact that the lows came in almost to the day and on schedule, negative sentiment spiked on both days as measured by the CBOE Put/Call ratio and the CNN Fear/Greed index, furthering our confidence that both of these lows would hold. We had Navigator Algorithm and positive momentum buy signals on these lows in the indexes and many of the growth sectors – another bullish sign. We were transitioning from March – which traditionally favors more defensive market sectors, to April, which is typically the best month of the year for the stock market and technology. Clearly, we were bucking the market’s interest rate and inflation narrative or “ruling reasons” which can be advantageous at turns.

On April 1st, we closed on the day’s highs for both the NASDAQ 100 and S&P 500 indexes and on top of the previous day’s spike – unbelievably bullish. On April 2nd, the market was closed for Good Friday, but overnight activity in Globex (the overseas markets were open) carried us much higher – bullish. Then yesterday, we had a Gap and Go with a strong close and no gap fill, leaving a long line of single prints and a “P” formation, not to mention a virgin (untouched) point of control – mostly bullish.  A lot of single prints indicate desperate, emotional buyers that were likely panicking to cover their short positions. 

Perhaps the only negative was that yesterday’s structure was shaky with all of the single prints, and the overseas markets were closed, leading to light volume. But overnight activity in Globex last night was balancing in a small range, barely testing a portion of yesterday’s lower single prints – which was mostly bullish and showing acceptance of yesterday’s higher prices overseas. Moreover, we obliterated the latest market narrative that the NASDAQ 100 was linked to interest rates and inflation expectations.

In one sense, the single print nuances clearly point to a very shaky structure that is “piling on,” while the reality is that the Nasdaq 100 is waking up from a period of sleep. Buyers are engaged with plenty of catalysts to support their activity. The structural implications also give us plenty to work with in terms of one of our favorite counter trades, “When What Should Happen Doesn’t.”

This morning, we are slated to open within range on overnight inventory that is net short but not 100% so. We are trading close to overnight halfback, and I am noting that the overnight distribution is compacted, indicating that the market is balancing and accepting the higher prices. As noted below, the overnight low traded into a long line of single prints but didn’t get very far – a bullish sign.

For now, overnight activity is pointing to balance – likely to be sideways action for the S&P 500 index as we are already bumping up against the Weekly Expected Move high. The NASDAQ 100 has room to trend a bit higher, until it tags its Weekly Expected Move high just above current levels at 13637. The overnight tone typically sets the tone for regular session activity, which makes perfect sense today given our upward boundaries and the past three sessions’ significant progress. Emphasis should always be placed on “typically” as nothing in the markets is universally true. As the overnight lows for both the NASDAQ 100 and S&P 500 had all the potential for trading lower last night in Globex, it makes sense to assume that they are secure until they are not.

Should the overnight lows be breached, there is a clear lack of support below them, with a long line of single prints sitting above huge gaps. Potential shorts are likely premature, and any failure to liquidate into the single prints will carry the bullish scenario forward.

The overnight low and yesterday’s high will be near the open for both the NASDAQ 100 and the S&P 500, so I will use them as potential breakout or breakdown levels in the first part of the day.

Best wishes for the session today.

A.F. Thornton

Epilogue – 4/5/2021

In the Morning Outlook for Day Traders yesterday, we pointed out that there would be a true gap, and gap rules would apply. A true gap is a gap where the market opens above the previous trading day’s high. This is much more meaningful than merely opening above the previous day’s closing price. When I use key industry terms, I often highlight them to click and go to a glossary – especially when I invoke trading rules. Look for highlights when you don’t understand or may forget the rules.

Sometimes, the software is difficult to work with. I am usually in a hurry to get the information out to you before the morning opens, but with as much of the overnight data under our belt as possible to give an accurate assessment of the day ahead. It does not hurt to check back about 30-minutes after the open to find corrections, links, and typos cleaned up on the Morning Market Outlook for Day Traders. The timeliness of the information takes precedence over minor typos.

Even though I have created algorithms that give me extraordinary guidance in making both short-term and long-term investment decisions, Jim Dalton ( (now 80-years-old and an industry legend) taught me the importance of “thinking” as a young trader. What does the market-generated information objectively tell us about the market? What is the market doing – what is the general tone and bias? What is the market trying to do? How successfully is it accomplishing the goal?

Yesterday was a great example of a gap and go – the application of Gap Rule #1. This behavior communicated how strong the markets, especially the NASDAQ 100, truly were yesterday. We now carry that narrative forward with us today.

A couple of caveats are in order from yesterday, however. Many overseas markets were closed for Easter (our previous night and half the day). Accordingly, yesterday’s volume was light. Perhaps more importantly, the bond market was quiet without the overseas participants, so bonds and rates did not interfere with the U.S. climb. I also carry that narrative forward. 

Yesterday still counts as positive bias, but perhaps not as much as a day with full participation by all global market participants. International perspectives about our debt, spending, and interest rates are quite different than the domestic front. Interest rates are front and center lately.

Put yesterday’s action in both the S&P 500 and most notably in the NASDAQ 100 as samples of Gap and Go days to refresh your memory periodically. Also, note the behavior when the S&P 500 Index tagged the Weekly Expected Move high. It danced there for the rest of the day.

A.F. Thornton

Morning Outlook – April 5, 2021

We have the S&P 500 Index achieving new high territory again this morning, having decisively cleared the elusive 4000 mark, with the NASDAQ 100 clearing the resistance between the index and the old high. Both indices will gap open as true gaps, so gap rules apply this morning. We will have Treasury Secretary Yellen sounding off on the new infrastructure bill and proposal later this morning – certain to bring a bit of volatility to the table.

As with all true gaps, the early fade potential is present, especially on large gaps such as those presenting this morning. Whether you trade them or not, use the gap to your advantage to glean the market-generated information that will be revealed by what the indices do or don’t do in early trade. 

For example, Is the fade fully to last Thursday’s high? Is the fade partial to about halfway? Is the fade barely perceptible with almost no countertrend activity? Each of these outcomes tells us a lot about each index’s strength and how we should interact with it.

Assume strength above the overnight high at 4038 on the S&P 500 index as there is no technical resistance. Monitor for continuation.

As per Gap Rule #4, don’t discount the potential for the futures market to trade sideways for the duration of the session. This is common on large gaps, and traders should look to individual equities for higher odds intraday plays rather than futures.

As you know, I rarely trade Mondays, and that goes double for Mondays after a three-day weekend. Over the past 34 years, I have learned that traders and even institutions sometimes do weird things after a few days to breathe and reconsider their positions. I like to have that out of the way and prefer to trade beginning on Tuesdays.

The expected move this week for the NASDAQ 100 is 303 points – ranging from 13031 to 13638. For the S&P 500, it is 47 points – ranging from 3972 to 4067. As with most weeks and depending on direction, we will tag one of those levels, and then the market will stall for the rest of the week.

A.F. Thornton


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