Category Founder’s Trading Journal

Founder's Trading Journal

Reflation

AF Thornton 0 Comment
Navigator Algorithms - 94% Cash / 3% XLF Calls / 3% XLE Calls

S&P 500 Index Futures (half-day candles)
with Navigator System Status Labels

In the 2021 outlook video, I emphasized the inflationary consequences of the deluge of money-supply ripping through the Federal Reserve System. Nearly 40% of all U.S. dollars in circulation were printed in the last 12 months.

I will skip discussing my seething anger anticipating the bubble that will eventually burst. Suffice it to say that when we finally pay the piper, the Pandemic will seem like a walk in the park.

For now, inflation and growth expectations drive interest rates, which are now responding to the call of their inflation masters. Hence, the 30-year treasury yield is bumping 2%, while the 10-year seemingly has conquered the 1% level.

As oil continues its climb and higher rates reward the financial sector (mainly banks), I am looking to add to our XLE and XLF positions on dips. Because the market still has considerable influence on the sectors, I don’t mind exiting to cash on expected market turbulence. Make no mistake; managing market risk is paramount at these levels. A 10% correction is just around the corner, and waning market momentum is flashing yellow at this writing.

Crude Oil

Markets can tolerate rising rates (at these low levels), as long as Federal Reserve policy doesn’t change significantly. Rising rates and the steepening yield curve (long rates – short rates) also indicate growth ahead – which is good for earnings. Open borders will tame the inflation beast as wages, once again, will be hammered by global migration serving our glorious elites and the demonic Great Reset. So I am not concerned about the negative aspects of inflation yet, just how to benefit from the immediate turn.

10-Year U.S. Treasury Yields (Rates)

Additionally, I am focusing some attention on international ETFs for the first time in a long, long time. The weakened dollar has put the emerging market economies back on a firm footing (their debt is denominated in U.S. currency). This time, the emerging markets do not have to worry about China pegging to the U.S. Dollar, as China would just as soon see the U.S. topple under its own largesse and political strife. Of course, they could change their mind now that China has installed their own regime to run the U.S. government.

Perhaps the most perplexing issue on my radar is Gold. I am showing a long-term peak in the metal based on Hurst’s Nominal 9-year cycle:

Gold

Of late, Gold has been correlating with U.S. Treasury prices, so perhaps the peak is related to the “Risk-On” nature of the current investing climate. Also, there is a clear division in outcome expectations of the financial bubble busting. Some experts expect runaway inflation, while others expect another deflationary spiral. Perhaps Gold is picking deflation as the winner, or maybe my forecast is just plain wrong. Time will tell.

If Gold is peaking, I look forward to building my coin collection in the decline. The more, the better given worst-case forecasts regarding the mounting Global Debt Crisis and the severe economic decline that may surely follow.

Today's Plan

The Navigator Market Algorithms are in short mode on the 195-minute (half-day candle) chart, as can be seen above. Moreover, momentum has declined on each rally loop of the chart. In attempting to conquer and hold 3900, it is not unusual to see some sputtering, but I still see high probability of a liquidation break soon.

Looking specifically at today’s session, the overnight low looks weak, leaving the potential for a sustained move back below 3900. Should a more significant liquidation break get underway, signposts start sequentially with yesterday’s low around 3887.25, on to the untouched points of control starting with 3880, 3850, 3827, and the top of the gap at 3799. Obviously, I would not expect traveling much below the ’50 handle in a single day on a liquidation break.

Should prices firm, note the spike that is at the upper end of yesterday’s distribution. Acceptance within the spike, especially after holding the overnight low and failing to break, would confirm still higher prices ahead and signal that the market is not ready to break.

As always, stay tuned.

A.F. Thornton

Founder's Trading Journal

Bubble Up

AF Thornton 0 Comment

More and more, the period we are in reminds me of late 1999. I will have a 30-minute video out this afternoon showing the comparisons and other important relationships.

What I can say for sure is to buckle up. While the secular trend is intact and bullish, the short-term trend continues in a blow-off, bubble-like state. Accordingly, this market is not for the faint of heart though the dip a week ago now looks like a one-off event related to the GameStop/Reddit phenomenon. Volatility will remain high, and downside risks are elevated to code red.

We should gap higher again this morning to a new all-time high in the S&P 500 index. The Nasdaq 100 is even a bit stronger and is also set to open at a new record high. Overnight inventory is 100% net long and we are currently trading close to the middle of the overnight range.

As there is no upside reference for trade today other than the overnight high at 3900.50, my early focus will be on whether or not there is a gap fill. Then, if so and how much. 

Friday’s time-based point of control was relatively prominent at 3880.25 and could also be tested on any weakness. Beyond that, we have untested points of control starting to stack up with two just in the last three day sessions at 3855.25 and 3827. Any of those can be targets on any corrective activity.

A.F. Thornton

Founder's Trading Journal

S&P 500 Exit at 3883.50

AF Thornton 0 Comment

We stopped out at 3883.50 on the S&P 500 Emini position in the core Navigator Model portfolio. That leaves us with a 94% cash position, 3% position in the XLE 40 calls expiring March 19, 2021 (paid $286 per call), and a 3% position in the XLF 30 calls expiring on March 19, 2021 (paid $125 per call). The chart below summarizes the year-to-date trades so far in our $10,000 account started on January 1st: 

Of course, the year is young, and there will be much to navigate before this year is over, comrades. And, as our regulators caution, past performance does not in any way ensure future results. Which begs the question – why does it matter at all then? Perhaps a quick statement about past performance as meaningless will get me a discount on my next tax return?

A.F. Thornton

Founder's Trading Journal

Sell Signal – S&P 500

AF Thornton 0 Comment

I am issuing a sell signal to the Founders Group on the S&P 500 index position at the open this morning to take some profits. We have a substantial, short-term profit and I don’t want to fight the market-makers today who may try to drive the market into the WEM expiration level at 3830. This is a short-term concern, and I am being hypervigilant. I believe that the market will continue to move higher next week. I will reposition at the breakout level around 3850 if possible.

Founder's Trading Journal

Party On…

AF Thornton 0 Comment

Navigator Algorithms – 100% Invested

Yesterday, the Nasdaq 100 and S&P 500 indexes hit new all-time highs, with the S&P 500 index perhaps on its way to that final 3900-4000 target I set last November when we broke out of the consolidation. Given the double-wide volatility swath set by the options market makers this week, this is a truly amazing feat. Keep in mind that the S&P 500 futures tagged 3650 only last Sunday night.  At 3881, this writing underscores concerns that the market continues in an irrationally exuberant, blow-off stage. 

Today, with the S&P 500 index having blown through the options Weekly Expected Move (WEM) high at 3830 yesterday, the gains could accelerate as the options market makers race to neutralize their deltas before the close. Recall that the options market makers blew the WEM low last week, with the market closing well-below the level set for last Friday’s expiration. 

I need to do a primer on the WEM to explain this to everyone better, but the influence of weekly options expirations on the markets cannot be understated. When the market escapes the range set for options each week, one needs to be extra vigilant in the attendant volatility. Billions of dollars in losses are at stake when these weekly levels and ranges are exceeded before the Friday close.

Of course, today is far from over, though the futures are net-long overnight. Market makers may attempt to drive the market back towards the 3830 expiration before the close to minimize their losses. I intend to issue a sell signal at the open to grab some of our own gains today to help them out. Since 3850 acted as a barrier for a few weeks, the level might be retested today as traders adjust inventories before the weekend. A retest might also be a place to add to positions.

Stay tuned.

A.F. Thornton

Founder's Trading Journal

Core Navigator Buy Signal

AF Thornton 0 Comment

We just issued a Navigator buy signal to the Founders Group at 3835.50. Since we already have 6% allocated to XLF and XLE calls, that leaves a 96% position for the S&P 500 index. As always, do your own homework and make your own decisions.

Given recent volatility, these positions could be very short-term compared to normal, swing-trading holding periods. So if you are keeping track of my decisions, stay attentive to your emails or check this website periodically.

Founder's Trading Journal

Dispersion

AF Thornton 0 Comment

Navigator Algorithms – 97% Cash – 3% XLE

It is time for another deep dive. This weekend, I will be covering the shifting relative strength of small caps and international markets. As you can see from the chart below, we are in the early stages of these relationships turning positive (shaded areas are recessions).

The steepening yield curve, strength in oil and commodity prices, weakening dollar, and an eventual reassertion of the uptrend in gold contribute to these relative strength shifts. 

In addition to the XLE, the financials (e.g., XLF), particularly banks (e.g., KBE),  are poised to benefit from the steepening yield curve. The inflationary pressures also stand to support relative strength in the materials sector ETF (XLB).

The short-term problem is that we are still dealing with an overbought, euphoric market trying to pass through a 40-week cycle correction zone. I will sort through the issues over the weekend, but you can see my thought process and potential investment targets.

For now, the Nasdaq 100 led us off the bottom of the Reddit downdraft, but the breadth is narrow, and the other major indices are not confirming the recovery as yet. Man cannot live by tech alone, as I often say. Of particular concern are the lagging Dow and Transports. Another schism to be resolved over the weekend. 

Morning Plan

As to the core S&P 500 index and Navigator Algorithm, the value area was unchanged yesterday, signaling that the recent higher prices are being accepted – albeit with significant breadth concerns and non-confirmation of all major indices. The gap below us remained unfilled yesterday, another sign of strength.

The market will open within the past three days’ range, with prices very close to the overnight high. Regular session sellers were muted on yesterday’s expected liquidation break, and sellers also failed to take control overnight.

So the path of least (or perhaps lesser) resistance remains higher, with the breadth caveats mentioned above. Remember, a break above the February 2nd high will be a breakout from two days of balance and could trigger a Navigator buy signal. A look above and fail would bring us back to the lows of the past few days around 3800 and potentially into the unfilled gap from there.

With cyclical down forces in place until mid-February, we are still in a caution zone for swing trading, though I will continue to take advantage of the short-term swings in the Founders Group.

Despite the generally overvalued, leveraged, and euphoric market, opportunities are everywhere beneath the surface.

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