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S&P 500 Futures – ETH Data

The market (as measured by our S&P 500 index proxy) has been battling to hold the weekly mean and managed to close above it today. I like the current negative sentiment and its interplay with the projected 80-day cycle low. In other words, there is a good context for an intermediate low.

There will always be a negative correlation between confirmation of an intermediate low and our returns. The more confirmation we have that the low is in place, the further we will typically be from the low when we enter. The further we enter away from the low, the greater the risk of a reversal to retest the break higher when we enter. If we are wrong about the low, the further away we enter also exacerbates the loss to our stop. Always bear these issues in mind.

Today’s close leaves price in the familiar teetering position. It not only sits at the weekly mean, but the price also approximates the August monthly low and the highs of the last few trading sessions. So this location is resistant, and I will need to see some upside follow-through to issue a buy signal coincident with a green Navigator Algo arrow. Nevertheless, the price action is encouraging today as was the strong close.

Keep in mind; I am not predicting or expecting the market to move up to new highs. A trading range is the most likely outcome from the break of the 60-week bull microchannel. At the very least, a move up to the top of the down trend line is possible. We will need to see the market eventually conquer that line as well, but first things first.

Risks abound, as they always do. China and a grab for Taiwan remain my biggest concern. But would they do that before they host the Winter Olympics in February? There is no way to quantify such black swan events except to keep your downside guarded should we issue a buy signal tomorrow.

Consider this your heads up, but we have come close to buy signals several times since we went to cash on September 10th. Though we came close, the signals never manifested completely.

Stay tuned,

A.F. Thornton

From the perspective of the 24-hour S&P 500 Futures contract, we are approaching our third inside day (if the overnight action is to be considered). This is a converging triangle type of consolidation. It also becomes a trading range framed by 4260 on the low end and 4365.75 above.

It also becomes apparent that the short-term momentum crowd is at the table, and the institutions are in more of a wait-and-see position.

The overnight session has erased yesterday’s gains and then some, trading just a few points below the RTH Low at this moment. The gap is true if we open out of range, and gap rules will be in play.

Coming back into range today (should it occur) will be interesting as there are 30 handles of single prints from the RTH Low to where value begins. Assume less resistance in this area of the distribution.

Overnight inventory is very close to 100% net short this morning which should also factor into your assessment of how the open will react. Although the gap is large, we are also quite far away from the ONL, which simply means that the imbalance at open is not nearly as great as it potentially could be were we trading closer to the ONL.

Work from the framework that any activity inside of the RTH range in early trade can bring on strong short covering. Monitor for continuation.

Holding below the RTH range is far less bullish, with the caveat that we remain within the multi-day trading range unless the 4260 swing low is taken out.

A.F. Thornton

Looking at the intermediate trend, the broad market (as measured by the S&P 500 Index) is still trying to find its footing at a double bottom around 4300. There are definitely buyers between 4250 and 4300, as we have seen for two sessions and overnight. But the trend remains down, and the Navigator Algorithms remain in cash, eluding several very close, potential buy signals. We continue to operate on the assumption that the market is in the process of establishing a trading range for the next several months.

For day traders, keep the intermediate trend in mind. While the S&P 500 held its recent lows yesterday, tech and the NASDAQ 100 put in new lows. Part of the decline was due to Facebook’s precipitous decline in the wake of what appears to be a CIA-type psyops game run against them. I am reminded about what China did to Jack Ma and Alibaba.

Our intelligence apparatus is likely trying to show Zuck who is really in charge. A whistleblower (attempting to enhance the left’s desired dissent censoring programs) combined with a mysterious global outage for all of Zuck’s apps is hardly coincidental. In the apparent leftist coup attempt underway in our country, Facebook needs to snap to it or face the consequences.

Zuck will learn that it is treacherous to deal with the devil. Just because you help the leftists take over does not mean they won’t eat you when your usefulness wains.

For day trading today, continue to focus on the swing low around 4260 as both the gateway to lower prices and a short-covering trigger. If sellers cannot move the market sustainably below 4260, the shorts will have to cover, and that may be all that traders will need to begin moving the markets back up the down channel for now. If we take out the overnight high at 4314.75 with some follow-through, the market can begin to repair yesterday’s single prints, and I become more bullish.

The situation between China and Taiwan bears monitoring. It remains both a wildcard and a hotspot. Your downside needs to be guarded and measurable if you are long. So many of our computer chips come from Taiwan that any conflict will devastate the financial markets.

The Navigator Algorithms remain in their cash position established on October 10th, and that remains our official swing trading position. I will, however, admit to personally nibbling in some of the downswings, but I don’t have much green to show for it quite yet.

A.F. Thornton

Friday’s short-covering rally left a trail of single prints – indicating a lot of emotional trading. The overnight activity is within the value area, which tells us there was no price exploration in the overnight session. Today’s activity will tell us a lot about future direction as we see if any longer-term buyers are spurred to action. The trend is still down until the Navigator Algo line triggers a buy, breaking the downtrend line.

The higher odds trades will probably develop later rather than earlier in this session. Watch the ends of the single prints at 4338 and 4329.75 as potential inflection points for trades. They often act as support or resistance. Assume a more bullish stance should price hold in the upper distribution (above 4338) and more bearish should they hold in the lower (below 4329.75).

A.F. Thornton

We closed out September yesterday with the break I have been predicting in the near historic winning streak on the monthly charts. In fact, September entirely reversed August’s gains leaving a key reversal on the charts. But all my prediction means is that I was finally right just like a broken clock that is right twice a day.

We closed just slightly above a retest of the 9/20 swing low. They took it down another 30 points overnight but brought it back. Were it not for the overnight action, the cash chart simply looks like we will finish testing the low this morning and go from there. Lately though, the daytime crowd has shown no respect for the overnight team. My fear is that the bears are making too much money to quit now. In any case, a rip your face off short-covering rally is due soon and may have already started.

My dilemma is threefold. First, is this truly the bottom of the 80-day cycle? If so, we should move higher from here to establish the top of a trading range. If not, what are we experiencing? Is the 18-month cycle still in our windshield and the markdown just started? Did the 80-week cycle bottom on 9/20 only to peak early giving us left translation in the wave, as further evidence of a late arrival of the 18th-month cycle? Is all of this just political volatility around Congressional infighting and Fed Chairman Powell testimony?

Let’s see if the small gap higher attracts early sellers or not and assume potential for short covering with a first target of the Globex high at 4320, with an ultimate target at yesterday’s halfback at 4333. Monitor for continuation very closely.

If we are to head lower, the opening drive will move lower almost immediately which would tell us that sellers are VERY firmly in control and are not interested in covering at all, which also would be confirmed by a retracement back down through the open which would be a short. Given the sentiment out there, the cross down through yesterday’s RTH low at 4293.75 could also be an entry or level where earlier shorts can add to their position.

Again, monitor for continuation very closely. It goes without saying that the Navigator Algo has not rendered a buy signal yet.

A.F. Thornton

The good news is that the market is nervous about any number of monsters under the bed. There is the real estate meltdown in China, a spike in interest rates, Bidenflation, mandatory vaccine-induced labor shortages, artificial fights over the debt ceiling in Congress, and the like. But rather than follow-through to the downside yesterday, the market balanced as we anticipated.

We don’t get to hide under the covers, so we have to work our way to the closet and open the door, just in case another monster is in there. Our mission is to go where others fear to tread.

The market already knows about the monsters mentioned above – but is being indecisive. Are we pausing to go lower? Are we putting the finishing touches on the 80-day cycle low? We don’t have to know quite yet, but I still slightly favor the latter over the former.

Last night, the market pushed higher right into our buy trigger, but we came back into the two-day range at this writing. Value was overlapping to higher yesterday, and the low was weak as it touched down very close to a volume POC and an overnight low. Carry the low (4344.25) forward as your long/short threshold this morning.

Conquering the overnight high at 4389 with follow-through and acceptance trips the Navigator Algorithm buy signal, but wait for my confirming alert. We would need a couple of hours above the level to convince me.

Then, I would love to see the market conquer the bottom of the gap at 4406.25 to do the happy dance. If we breach the lower threshold, look for a move right to the swing low at 4293.75, and then we will see what happens. Traders have accumulated a lot of short positions, so watch for the bear trap and short-covering rip higher.

I don’t know how they do it, but the market-makers are keeping the market up and around the WEM low at 4472.75 for tomorrow’s weekly options expiration, but the level has acted as resistance thus far.

It’s the last trading day of the month and quarter. That could easily add to the indecisive action.

A.F. Thornton

Yesterday was a bloodbath of a retest, and the Founder’s Group took the opportunity to nibble on a 5% position in each of the QQQ and SPY. Both positions are in the green this morning thus far.

It is a bit tricky for an options strategy as the implied volatility is high for pure calls. If volatility abates, the implied volatility crush can subtract from otherwise positive returns. I will discuss that complication later today. This outlook is already a bit late this morning due to a technical glitch, so I would rather expand on the concepts later.

Although we are opening in balance, sentiment has shifted to bearish, and longs who are still stuck may see the small gap higher as a gift that decreases their losses.

I will use the ONH/Bottom of the Single Prints/Weekly Expected Move Low at 4372.50 and the ONL at 4344 as signposts for potential larger change. Should prices stay within these boundaries, then the market is balancing.

At the upper reference is potential for short-covering and below emboldens sellers and should attract new ones. If so, the swing low at 4293.75 is the ultimate target.

If we move decisively above 4372.50, a successful retest on the 80-day cycle could be finished, and we might begin a new move higher to challenge the old highs.

The sentiment is so negative at this point that I would bet on higher rather than lower prices. But with tomorrow being the end of the calendar quarter, window dressing by money managers may complicate matters over the next 24 hours.

The Navigator swing strategy remains 100% cash as we have yet to achieve an Algorithm buy signal.

A.F. Thornton

Both the SPY and the QQQ are at their Weekly Expected Move lows. The Founders Group is taking a 5% position in each of the QQQ and SPY at the money October 15th calls. This is a risky move, and it is lacking an Algo buy signal but anticipates that the 80-day cycle low is in and this is a retest.

This is a nibble, with a stop 4 tics below the 9/22 swing low for both positions. Keep in mind that we are buying at the Weekly Expected Move low for both positions and in line with a full retest of the swing low for the QQQ.

This is not an official Navigator Algo Swing buy signal. The Navigator strategy remains 100% in cash for now. We pass the information along solely for informational purposes and highly experienced traders who may want to start nibbling in the downswing.

A.F. Thornton

If the overnight markets forecast the day, the S&P 500 futures are headed south again, perhaps for a full retest of the recent swing low at 4293.75. For once, Tech and Growth are dragging the market down as Energy and Financials lead.

The key line in the sand for day trading is 4385.75, which is the breakout candle from 9/22 and not too far below the overnight low of 4388 at this writing. The bears are in the driver’s seat below 4385.75, if not already. As we are approaching the end of the third quarter, anything is possible. Earnings (and accompanying guidance) will be the focus as we close out September at the end of this week. The market is slated to gap down in a true gap so Gap Rules apply this morning.

As yet, the Navigator swing strategy has not rendered a buy signal, and the market is failing at a mish-mash of key lines congregating around 4450 (the Algo trigger, 50, 21, and 5-day lines). As a result, the swing strategy remains in its 100% cash position from September 10th.

In addition to the S&P 500 index, the Founders Group has focused on day trading Energy (XLE) and Financials (XLF) in addition to the S&P 500 futures. There has been some ancillary benefit to the Russell 2000 (IWM) due to its exposure to regional banks and energy companies. There are several financial stocks (e.g., AIG) breaking out of bases.

The underbelly of this market may not be China’s real estate problems, though it merits a separate discussion. The developing problem is much more boring. As I sit here in Southern California and look out the window, there are lines of ships all the way down the coast to Newport Beach waiting to unload. Fully 12% to 15% of all containers in existence are stuck at sea. There is nobody to unload them – or at least not enough dock workers to unload them. Here are the cargo ships waiting around L.A. It is not unlike airplanes circling and waiting to land at an airport.

Seen from a worldwide perspective, the situation is somewhat unprecedented:

This truly is a crisis and is the reason for the shortages coming this fall. The UK has plans for Marshall law as the shortages lead to tensions in the population. And it isn’t just labor shortages at the docks but also a shortage of truck drivers that exacerbates the problems in the UK and even here at home. The UK is experiencing gas lines, and fuel prices have skyrocketed in Europe generally.

In the U.S., the government told us that workers would return as soon as the so-called generous unemployment benefits expired at the end of August. It hasn’t happened. Though there are many reasons for this, the vaccine mandates have further complicated the situation. Workers are told that the unvaccinated need to get vaccinated to protect the already vaccinated from a vaccine that is not protecting them and likely won’t protect the workers either. People are not that stupid, and they choose to quit instead of being forced to take the needle.

The situation is somewhat unprecedented, but it is what it is.

A.F. Thornton

A week ago today, we were deep in the hole of the 80-day cycle trough, but we managed to recover about half the losses by Friday.

Overnight, we tested the top of the former balance area at 4472, then reversed back down to 4433. The 4472 level definitively breaks the downtrend line from the all-time high and our key reference line – the 21-EMA at 4440. But failure to hold the levels from the European open increases the possibility of a retest of the lows. The reversal looks like a “V” at the moment with no need for a retest, but we need to take the retest possibility seriously.

The overnight low at this writing is 4427, and further trading below that level would trigger my bear bias, with Friday’s low at 4410.75 being the absolute bull/bear tolerance line. Otherwise, we should be looking for follow-through from the weekly reversal last week.

As to sectors, technology seems to be lagging due to a spike in interest rates at the end of the week. Energy and Financials continue to lead.

My best judgment is that we move up to the old highs but then reverse again to establish a trading range between the all-time highs around 4550 and last week’s swing low near 4200.

The Navigator swing strategy is on the verge of a buy signal but requires a close above the 21-day line to confirm it.

A.F. Thornton