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Good Morning:

I will be live on YouTube this morning for the Fed Speech from Jackson Hole (my home city). Here is the link.
As you might have heard, the Orwellians (with a wink from the establishment Republicans) rolled out a new strategy the past few days to tag President Trump with the Covid-19 vaccines and all of the bad side effects, permanent damages, and deaths.
But at least the vaccines prevent transmission and presentation of the disease, right? Wait, you mean they don’t? Do you mean that you are more likely to get the illness and die than if you had not taken the vax? ORANGE MAN BAD!
And you cannot make this up, but all the social media giants, including YouTube, magically lifted all of their restrictions on discussing the negative effects of the vaccines yesterday.
And in an unrelated disclosure, Mark Zuckerberg, yes, Zuck himself, told Joe Rogan yesterday that he had a visit from the FBI before the 2020 election informing Facebook to be vigilant because the Russians were about to drop a big load of disinformation. A few weeks later, the Hunter Biden laptop corruption treasure trove appeared on the scene. So Zuck admitted that Facebook suppressed the laptop as Russian disinformation.
Remember that the FBI had already possessed the laptop since late 2019 and never disclosed it before Trump’s second impeachment trial or the 2020 election. The laptop computer confirmed everything Trump discussed in the Ukraine phone call and more. It would have exonerated Trump by itself.
Obviously, the FBI interfered in the 2020 election, just as the FBI and Justice Department are now interfering in the mid-terms with the Mar-a-Lago raid. So the Orwell administration and its government, social, and other media cronies are now in full gear to alter reality.
Having lost my mother and father-in-law to the vaccines, nobody needed to tell me the damages. And there is no doubt who knowingly made the vaccines mandatory and still is – President Orwell.
But the irony is that the people who lined up for the vaccines and promoted them are all Orwell supporters. The Orwellians must be angry that ORANGE MAN BAD supporters refused the vaccines – and are surviving in droves. Morbid though it may be, it looks like the Orwellians are killing their supporters and votes.
Anyway, if I were the ORANGE MAN, I would take the incoming right until the last minute and announce my retirement and endorsement of Ron Desantis. Doing this right before the 2024 election would ensure a Desantis victory before the Orwellians can devise a smear campaign.
Disturbingly, you can get 30% of the population to believe almost any lie, and the Orwellians know this too. But they should have thought about how many of their supporters might be left to vote for them.
Likely, I need to take a vacation where there is no communication and media until January 1st to stay sane before the upcoming mid-term elections.
As always, thanks for letting me rant just a bit.
Yesterday saw the market continuing to turn at our “X” marks the spot. And it seems the market wants to move higher at this 80-day cycle pivot point. The market usually gets what it wants, and the excuses come later.
We ended yesterday on a spike so Spike Rules apply this morning. So far the indication is bullish, as the market is slated to open within the Spike.
I have no real basis for this forecast, and neither does the market, but it seems that no matter what the Fed says this morning, the market will move higher, then eventually lower in a few eeks. Like I said, no basis for this, just a gut feeling.
The market has a 50-point DEM (4150 to 4250) with plenty of upside room in the WEM range (4145 to 4310) before today’s weekly expiration at the close. I think the DEM underestimates the volatility we will experience today
With the lower end of both ranges near 4150, perhaps the level would be a low risk to stop entry point in a more downward spike after the speech is released.
Yesterday’s move back into the WEM range and its close above the five and 21-day lines were short-term bullish.
One day does not make a trend – but it is a step in the right direction for the bulls.
The pre-market PCE release may give the market a hint before the Fed speech. This measure of actual consumer expenditures is said to be Chairman Powell’s favorite indicator.
We remain on the same plan since we first announced it on the sell alerts early last week (see chart above).
Since Wednesday, we have been trading a short-term buy alert on the 2-hour chart at 4127.50. A few hourly closes below the 5-day line or a spike lower is our stop.
A close below or even a significant sell-off after today’s speech and reports puts the bear back into play.
The top of the recent Gap at 4220 could be the first major resistance on a move higher, and the VPOC at 4140 might be the first major support after 4150 on a move lower.

Stay tuned and have a great weekend!

A.F. Thornton

Founder's Trading Journal

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Good Morning:

Let’s stick to the plan – but let me add that we are coming into the ideal location for the nominal 80-day cycle low and turn tomorrow.
This could bolster the bull case in the very short term.
I added the cycles to our plan chart above.
The nominal 80-day cycle is important but definitely not one of the largest.
2nd Quarter GDP was revised upward this morning by a few ticks but remains negative at -0.06.
The jobs report came out a little better than expected this morning, but the employment picture continues to deteriorate, with half of all companies expecting to lay off more employees.
In addition to the Fed Chairman’s key speech at Jackson Hole tomorrow morning, we will also get a look at the PCE inflation report, which is said to be a key barometer for the Fed.
President Orwell’s unconstitutional order to forgive student loans yesterday continues to be vigorously debated this morning. I can hardly bring myself to comment.
When you carefully examine the issue, the true cost is $1 trillion over the next five years.
One positive – students get a discount on their commie indoctrination.
Overnight futures were positive, and they crawled back inside the WEM low at 4145. That is encouraging for the bulls.
The futures gave back some gains after the morning report so that the market will open with a Gap higher and close to a True Gap higher, so apply Gap Rules.
The DEM is 45 points plus or minus yesterday’s settlement at 4142.75.
Resistance first lies at the overnight high (4188) and then at 4200, with a pivot area at 4160 (SPY 415) to 4150. Support lies down at 4110 (SPY 410).
The 21-day line at 4180 also remains an obstacle. The WEM low at 4145 also remains key now that Dealers are defending it again.

Stay tuned, tomorrow is the key, and the market is hanging tough at “X” marks the spot.

A.F. Thornton

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Good Morning:

As a housekeeping note, the Morning Notes will now focus strictly on the overnight action and what it may add to the picture if anything. The Afternoon Notes are where you will find the key levels and insights. I will try to get a video out later today. My schedule has been swamped recently, and the videos take a great deal of time.
Today’s DEM shows 45 points plus or minus yesterday’s settlement at 4130.50. That means the options market is pricing today’s range between 4085 and 4175. The WEM remains between 4145 and 4310. Can the market crawl back up inside the WEM range today? Can price save the Dealers from sudden death and hedging activity that will exaggerate market declines? We shall see.
The 21-Day line (mean) at 4175 has now become resistance, providing little (if any) support on the way down. The goal would be to recover that line soon and then the 5-day line. Of course, these accomplishments would bolster the bull case. But to take a long swing trade, we need to see the Navigator Algorithm start painting buy alerts on the 2-hour chart.
For the bearish case, I still think we can eke out a retracement up to 4155 and perhaps a bit higher to 4085 before rolling back into a final down leg into the Fed Speech to be released Friday morning.
Any retracement higher, however, is challenged not only by the 21-day line at 4155, but by a band of resistance starting at the Volatility Trigger (4140) and some significant Gamma strikes at 4150. Perhaps this is related to the failing WEM range low, around 4145.
We need to watch oil and other commodities – they may be coming to life again after a well-deserved rest.
Price tagged 4110 as the overnight low, still within the tolerance range for a turn at the 4120ish high volume node. Interestingly, we are making new lows overnight that remain elusive in the regular day session. Normally, overnight highs and lows are tested in the regular session at some point.
I remain bearish in the longer term, though certainly willing to change my mind. My immediate concerns relate to some very basic kitchen table issues.
1 in 6 households (20 million) is behind on utility bills.
Nearly 1 in 10 (14 million) are behind on their rent or mortgage payments, and 40% of these expect to be evicted or foreclosed in the next few months.
Finally, Americans piled on $46 billion in new credit card debt in the second calendar quarter—the biggest leap in two decades.
You won’t hear or read about the aformentioned kitchen table issues in the mainstream media. They act as the public relations arms of the ruling class that created this financial mess. For these dishonest and compromised information brokers, committing to narrative supersedes fact-gathering and accurate reporting. This is especially prevalent as we approach the mid-term elections. The media backs the World Economic Forum and its Democrat Party operatives.
While the market is focused rightfully on Fed Policy and interest rates, corporate earnings are bound to reflect the deteriorating economic reality at some point. It would be hard to justify current lofty valuations in the circumstances, much less new highs.
But the stock market does not always make sense or get it right. At the moment, and with WWIII looming, much money is fleeing Europe and other regions for the U.S. Dollar. Some of the fleeing funds are going into U.S. stocks, though bonds become increasingly attractive as rates increase.

As always, stay tuned.

A.F. Thornton

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Good Afternoon:

After a sharp rally and full retracement of the same following today’s Open, the market rotated around the Open for the rest of the day. The rotation is what we anticipated this morning. We referenced trading it as Responsive Trading.
Interestingly, at the top of the rotation was the WEM low at 4145. With the market unable to find acceptance back inside the WEM range, I am concerned that the Dealers were bailing at the level rather than defending it.
Failure to recapture the WEM range could be bearish for the next few sessions. Be careful.
The market closed at the low, and very little occurred in the session to motivate a bull. The bears still have the upper hand momentarily.
Back to plan, I indicated this morning and last week that we would potentially see a low-risk entry point at the highest volume node in the correction around 4120. Actually, 4120 give or take is not only the highest volume node but in Volume Profile Theory it is considered the fairest price of the year.
Price tagged the 4120 level and slightly below overnight, breaching yesterday’s low. In fact, the overnight low was 4118. But the market could not drive back to the low in the regular session today. Perhaps that was the one bullish takeaway.
As mentioned this morning, the market looks even more bearish below 4120, but there is bull thesis tolerance to the 50-day line at 3976 and the lower end of the Fib range at 3900.
The 3976 and 3900 levels and the “Fib Buy Range” below could be tagged in a volatile reaction to Fed Policy Statements later this week, but be prepared for a quick turnaround back to the high volume node around 4120.
Any price acceptance below 3900, and defending the summer rally as a new bull market, would be downright embarrassing.

Keep an eye on the chart above for key levels and reference points.
Be careful here – while I am still bearish for an eventual move to the 100-year channel mean, the market could zig and zag and drive us all crazy along the way.
Most importantly, I do my best to keep an open mind and you should too.
Friday morning will be the next inflection point with Fed Chairman Powell’s speech.

Stay tuned,

A.F Thornton

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Good Morning:

We remind subscribers that the Trading Room will be Thursday and Friday again this week. We want to be live for the Fed Chairman Powell Speech from Jackson Hole Friday morning about 30-minutes after the close.
It is hard to know where to start this morning, so I thought it useful to look at the Navigator Algorithm and the extraordinarily accurate sell alerts from the 15th, 16th, and 17th, taking us to cash at the very top of this latest run.
This proprietary tool has given us an edge over and over since we implemented the latest version in 2019. We have enjoyed triple-digit returns in 2020, 2021, and so far in 2022 as the result of the algorithm signals.
Nothing is foolproof, but access to this algorithm and its signals is well worth the price of any of our subscriptions.

Yesterday was almost scary. While I expected (and we planned for) a test at 4120 from our exit to cash last week, I certainly did not anticipate getting there this quick, and we tagged the level overnight. As predicted yesterday, the expected moves are already on their way to underestimating volatility this week.
It was scary yesterday that there were no buyers, and it almost felt like the market could crash. It was eery.
We are opening on or near the WEM low this morning at 4145, already achieved and exceeded yesteday (Monday). It does not hurt to mark additional levels at 1.5 and 2 times the move for the two sigma outliers. We will see if the Dealers can contain this week’s losses here.
Today’s DEM shows at 50 points plus or minus yesterday’s settlement at 4141.25. Today’s range (rounded) is set by the options market to be 4090 to 4190. The WEM remains between 4045 and 4310.
Again, treat the WEM and DEM as rough guides. As you can see from the first chart above, the price is now below the options market Zero Gamma and Volatility Trigger, increasing negative gamma and volatility.
Back to plan, I have indicated since last week that we would potentially see a low-risk entry point at the highest volume node in the correction around 4120. Price tagged the level and slightly below overnight, breaching yesterday’s low. We are on high alert for a low-risk entry point at the level.
On a positive note, overnight traders could not keep the market below yesterday’s low and brought the market back into yesterday’s range pre-market. At the very least, the market should stall today and regurgitate the steep losses of the past two sessions. The key to the 4120 high volume node is that the market balanced there twice, once in May and once in August.
Below the 4120 level, the market looks more bearish, but there is bull thesis tolerance to the 50-day line at 3976 and the lower end of the Fib range at 3900. Anything below 3900, defending a new bull market here is nearly impossible, and one would have to accept a potential resumption of the bear.
For today, if the market can climb back into the WEM range and find acceptance above yesterday’s halfback at 4155, I would be potentially looking for long trades or responsive trading. Otherwise, the downtrend is likely to resume.
No matter how bearish or wounded you might feel from the past two sessions, respect the convergence of moving average support at “X” marks the spot. Again, allow for some responsive, rotational trading today if the market simply pauses.
Global wildcards continue to loom and could interrupt the best-laid plans. Use stops.
Everything converges with Fed Chairman Powell’s Friday speech following the conclusion of the annual Jackson Hole conference.

As always, stay tuned.

A.F. Thornton

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Good Morning:

This week’s WEM is 4145 – 4310. The DEM is 4180 – 4280, and the market is already slated to Gap down to the low end of the DEM range. With Friday and today’s volatility, treat the WEM and DEM ranges loosely this week.
There is a large True Gap down again this morning. Gap Rules are applicable, especially Rules #2 and #4.
Recall that the market gapped down on Friday, too. So the Gaps qualify as breakaway gaps, which paint a more bearish picture than the usual pullback.
The Navigator Algo painted sell alerts last week before the downdraft got underway, so the decline is not surprising. Price breached the Algo Trigger line on Thursday at 4286.50 and the 5-day line on Friday at 4256. There is no excuse to be long in this market after all those chances to exit and make a profit.
With the large Gap down, look to the overnight halfback at 4198.50, Friday’s RTH low at 4220.75, and Friday’s POC at 4230.75 as resistance. Look at the top of the large Gap at 4178.50 and the 21-day line (mean) at 4159.25 as both targets and support. As price breaches a level, it reverses polarity. Acceptance at the lower levels adds to the bearish case.
The market will likely pin after the open in a tight range per Gap Rules. But that certainly did not happen on Friday, as the market kept going down, so follow the Gap Rules wherever they may lead.
With overnight inventory, 100% short and profitable, don’t forget to look for the opening fade.
As with any large True Gap lower on 100% net short overnight inventory, the first potential move is the fade. Either buy the high of the first one-minute bar or buy the cross back up through the open should the opening drive be lower. Monitor for continuation and target the overnight halfback first, then on to the full Gap fill.
As always, judge the success or failure of the fade by how far it goes. Again, keep Gap Rules #2 and #4 firmly in mind.
How much the market retraces in this first significant pullback since the July lows let us know whether the intermediate bear is over or will resume.
Recall from last week that the plan is to look for a bounce/low-risk entry point around 4120 if a new bull market is truly underway. Remember “X” marks the spot?
Increasingly, the market is focusing on inflation again, the Fed’s upcoming Jackson Hole conference, and Chairman Powell’s associated speech.
If market participants were hoping for the Fed to stop or slow the rate increases, they would likely be disappointed. Market participants forget that the higher the stock market is, the easier it will be for the Fed to raise rates by another 50-75 bps. Remember, the Fed wants to get rates back to normal if the interest doesn’t bankrupt the U.S. Treasury.
The so-called “pain trade” and “most hated rally ever” appear to be over. It is the longs that are on the run now. Can you imagine those who threw in the towel last week and bought at the top of this rally?
And then there is that low hum in the background – those annoying World War III and nuclear war prospects with the Russians and Chinese, not to mention the Build Inflation Better bill from the Orwell Administration.
These are, indeed, crazy times. So bad news might be good news again regarding the next Fed rate increase.
And, once again, “X” markets the spot around 4120, where all the important moving averages congregate, but this time as support rather than resistance. The market’s reaction there will tell us a lot.
My thesis has not changed. I am not married to it, but I believe the market is still headed to the 100-year channel mean. The mean is rising from 2500 earlier this year and is likely close to 3000 depending on how much longer it takes the market to tag it.

As always, stay tuned.

A.F. Thornton

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Good Morning:

I will be in the Trading Room today to give some thoughts on Monthly Options Expiration in real-time. There are not always day trading opportunities, but something valuable is still to be learned. I will discuss the concepts around WEM, DEM, and the general influence of options on the market.
The WEM remains between 4205 and 4355. It is not useful to plan a DEM today – as expiration has more influence than implied volatility. The largest Gamma expires in rank order at 4300, 4250, and then 4200. You can better see the levels in the chart above. Each of these levels has the potential to attract price and then pin it as dealers work their books.
Notably, the market has already spilled into the 4250 expiration overnight. That means the market is at break-even for the week and smack dab in the middle of the three major expiration levels.
The Algo is in sell mode, and the market is opening below the 5-day line. So we remain in cash and slightly bearish for a pullback.
Outside of the options expiration influences, resistance is at 4260 (SPY 450) and 4300. Support shows at 4200. But the market is likely to stay in fairly tight trading ranges. As price breaches a level, it reverses polarity.
Join us in the trading room if you can.

As always, stay tuned, and have a great weekend.

A.F. Thornton

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Good Morning:

We will be in the Trading Room today and tomorrow.
Today’s DEM shows +/- 40 points from yesterday’s settlement at 4276.75. That puts today’s range (rounded) at roughly 4235 to 4315. The WEM remains between 4205 and 4355.
Resistance is at 4298, then the DEM high at 4315 and the recent high at 4327.50. Don’t forget the WEM High at 4355 which could act as resistance if we are lucky enough to get there. Support lies at 4275, 4233, and then 4208.
With Monthly Options expiration tomorrow, the market will increasingly be more difficult to read and pinning is possible around the high open interest at 4300 and secondarily at 4250.
While the market has weakened and Algo sell signals have painted on the daily chart, our 5-day stop line has been maintained on a closing basis. But the market closed below the Algo trigger yesterday. So, we remain in cash and slightly bearish for at least a normal pullback.
Support and resistance reverse polarity when breached, which also applies to the big picture. Coming out of the June hole, our original key targets, now breached, should act as support in a pullback, at least if a new bull has resumed.
Ideally, I am looking for a low-risk to-stop entry point around 4120. Remember “X” marks the spot? Now “X” should be our new support and a low risk-to-stop entry point if the market is going to work off some of the recent froth. We are not likely to tag the level this week, but with the significant Gamma expiring tomorrow, we could see the level early next week.
In any time frame, including the daily chart, buyers typically buy the first pullback to the mean. So regardless of bull/bear prognostications, it makes sense to buy the mean (“X”) even if it is only good for a bounce.

Unemployment claims came out a little better than expected this morning, as did the Philly Fed index. With yesterday’s Fed minutes, the consensus for another 0.50% rate increase at the next Fed meeting remains.
Several Fed governors will speak later today, and we will get additional information on the housing market. Economic indicators continue to be mixed.
Notably, the 20-year treasury auction did not go well yesterday, and that may have been the catalyst to help the stock market peak, at least in the short turn.
As I have said, this rally may have worked off oversold levels, triggering some FOMO follow-through.
Alternatively, the rally may anticipate a Fed pivot back to easier monetary policy. Hope springs eternal if this is the case, but I would not count on a pivot anytime soon. The market doesn’t always make sense, nor does it always get it right.
What remains on the back pages, if not completely blocked out of the press by our illustrious establishment overlords, are significant geopolitical risks related to Russia and China.
The news blackout is concerning – as nobody likes a surprise and the Davos crowd wants a war. Remember them? Nothing like a war to implement population control and the Great Reset.
Cricket soup, anyone? How about a cricket sandwich? Are spiders the new lobster?

As always, stay tuned.

A.F. Thornton

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Good Morning:

Not surprisingly, the S&P 500 Index encountered resistance yesterday at the 200-day line amid an overbought price advance.
A liquidation break ensued, and the price will open on our 5-day stop line this morning around 4266, also below the Navigator Algo Trigger stop at 4277.
If the market spends a few hours below the 4266 level, I would consider exiting or at least reducing any remaining long positions you may be holding on a swing-trading basis. If you have the tolerance, a daily close below the 5-day line is a preferable stop, in case price dips below the 5-day line intraday only to whipsaw back above the line by the close.
We can quote support and resistance numbers, and even stops, but this is where trading is as much an art as it is a science. You learn how to interpret these levels in real time, and with experience, which is why you should subscribe to the Trading Room. We will be in the room tomorrow and Friday.
Note that Friday is monthly options expiration, which may begin to distort our usual trading process as early as tomorrow.
We remain in cash, waiting for a well-needed breather before making our next move.
If the market is finally ready to revert to the mean, keep in mind that any such pullback is usually bought by those who have remained on the sidelines and missed the melt-up.
So don’t necessarily assume that the bear is reasserting itself, at least on this first pullback.
Time and price will telegraph the intermediate picture as any pullback further develops.
Flat retail sales were reported this morning, adding to the recession case.
Today’s DEM shows volatility at 40 points plus or minus yesterday’s settlement (4307.75). The WEM remains between 4205 and 4355.
As mentioned the past few days, the Algo already painted exhaustion and sell alerts, further confirmed at yesterday’s close. The sell signals explain why we remain in cash and slightly bearish.
At this writing, resistance today is at 4300, and then 4327.50. Support is at 4233, then 4205. Significant support and the highest volume node below is at 4120. Also, the intersection of the important moving averages, including the 21-day line or mean, is at 4120. As price breaches a level, it reverses polarity.
Nothing prevents the market from moving higher up to the WEM high at 4355, even with a minor pullback. And higher remains the so-called “pain” trade – but the negative sentiment that supported this rally and turn has finally disappated.
If this pullback takes us below 4120, then you can consider the bear has reasserted itself. Above 4120, any decline would be considered normal and part of a new bull market.

As always, stay tuned.

A.F. Thornton

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Good Morning:

We remind subscribers that this week’s Trading Room will be open Thursday and Friday rather than today and Thursday. Friday is this month’s options expiration, and we will use the opportunity to examine option pinning strategies – which have their greatest potential to be realized at expiration.
Today’s DEM shows volatility at 40 points plus or minus yesterday’s settlement (4298.25). The WEM remains between 4205 and 4355. As mentioned yesterday, the top of the WEM would take the market to the expanding supply and 200-day lines.
Nothing has changed from yesterday. It still makes sense to maintain longs against the 5-day line and our proprietary Algo trigger (both currently sitting around 4260).
In our strategy, however, we have already taken some profits off the table at yesterday’s close, as we don’t want to give up 40-50 points to ride down to a stop. The market is steep, overbought, and far from normal stop levels.
Also, the Navigator Algo continues to paint early warning sell signals on the daily chart as the price wedges into 4325-50. It is still possible for the index to tag the 200-day line before rolling over, but longs are precarious at these levels and must be played very tight.
I would not initiate any new long positions here unless you are day-trading and out by the end of the session.
As the Dumb Money sentiment is peaking, we remain neutral to slightly bearish at these levels. It is likely too early to short, though OTM shorts are starting to price higher (see the rising SKEW index). I would, however, have short trades ready to go at the push of a button.
At this writing, resistance today is at 4305, 4325, and 4355. Support is at 4275, 4250, and 4233. As price breaches a level, it reverses polarity.
Higher remains the so-called “pain” trade. But, as mentioned above, there are signs that the rally may peak imminently. Usually, we dip into Friday’s monthly options expiration, so the relentless buying shows you just how powerful the FOMO has been.
I wouldn’t say I like the falling megaphone pattern. If the price has to travel back to the bottom demand line, you would need a couple of parachutes to survive.
And that becomes the next test of this market. Price has demonstrated the upside potential, but we need to see how it behaves in a setback. What will the catalyst be?
Notably, for the bulls, the biggest down cycle we typically encounter was the 40-week, coinciding with the June low. The next 20-week is due the first week of October but typically is less powerful than the 40-week. The grand daddy comes in March of next year when the next 18-month cycle is scheduled to trough. That is where it gets interesting.
Remember, the easy gains are now behind us for the short term. And while FOMO is a powerful draw, don’t get sucked in and let the pros dump you here.
You should be very happy if you have been following these pages since the June lows. So my best advice now is to be patient if you want to enter long, and gear up if you want to get short.

As always, stay tuned.

A.F. Thornton

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