As indicated yesterday, I am not trading today, nor would I with quadruple witching (monthly and quarterly options and futures expiration). There will be no commentary today as it is an important religious holiday here in Greece. Since just about everyone on this island is either a relative by blood or marriage to my wonderful wife, appearances are important.

The Navigator Swing Strategy remains 100% cash as it has been for the past week or so. As to day trading today, as previously set forth in these pages weird things can happen on quadruple witching days. As a perfect example, we see now (at 8:33 EST – the time of this writing) the S&P 500 making another pass at the WEM low –  putting in a brand new (post-Fed Meeting) low at 4173.50. I hand calculate the WEM low to be 4188 – while the computer calculation is 4189. The point is that many people will lose money today if the S&P 500 futures close below the WEM low level.

I was forbidden from sneaking another trade to or from the WEM low here, but I will sneak in a few comments. In this area, between say 4165 and 4188, we have the important rising intermediate trendline at 4193, the Fed Day reversal low at 4183, the 50-day EMA at 4176, and the 6/3 pivot low at 4165. That is a lot of support.

But for today only – I would key in on the 4188-89 WEM options expiration low. There is nothing else to probabilistically cradle the market below 4188-89 after expiration this afternoon. The WEM low will act as a magnet.

While the Weekly Expected Move low holds the market 80% of the time, on the occasions when it doesn’t, especially on an expiration Friday, we could experience a waterfall decline of sorts as market makers rush to neutralize their losses by selling S&P 500 futures contracts. That would be the exception to the rule. 

Otherwise, I would expect the market to move back to the 4188-89 level or higher before expiration at the close today – from wherever the market decides to pivot higher after this latest or any further sell-offs later today.

You don’t blindly buy the WEM low. You buy the pivot from the ultimate low or lows the market achieves today (maybe using a 15-minute chart as your primary analysis for the turn). So in one scenario, you may be buying close to the WEM low and continuing higher above it, with a successful retest of the Fed Day low around 4183 in place. Also, however, you could be riding a buy trade from a much lower level back up to the WEM low at 4188-89 by the close. Do you see how this works? Treat the WEM low as a magnet as long as the S&P 500 is trading below it.

Beyond that, the market needs to close above the rising, intermediate trendline currently around 4193 to keep the intermediate trend alive. The S&P 500’s negative divergence (meaning the broad market is not confirming the new high in the NASDAQ 100 by a long shot) is concerning. 

But for the NASDAQ 100 firing its last shot higher yesterday, I would be betting that the intermediate trend is finally rolling over. I will have more to say over the weekend, as I am not 100% confident in the analysis yet, but rolling over is my leaning.

Trading much below the 6/3 low today, which sits at 4165.25, could trigger the outlier, waterfall decline from which the market will not recover back to the WEM low. Admittedly, this is something we rarely experience. For now, traders could be running the stops under the Fed Day reversal low at 4183 – only to load up inventory to bring the market right back to the 4188-89 level to take profits late in the day. Right now, the market looks to be forming a falling wedge pattern to reverse higher on the 24-Hour futures data.

With yesterday’s settlement all the way back up at 4212, we would be dealing with a gap this morning (and perhaps a true gap if we open below yesterday’s low at 4183). If so, GAP rules would apply.

Also, keep in mind that we would be opening outside our recent balance area, which has the southern boundary at 4205, with the 5-day EMA just above there at 4209 and the 21-day EMA just below at 4204.

Summarizing then, a close below the 5-day EMA (4209), 21-day EMA (4204), 50-day EMA (4176) and the intermediate trendline itself (4192) nips the intermediate trend. It definitively shifts our strategy from buying dips to shorting rallies for swing trades. Day trades have to be considered day by day.

Best of luck if you decide to trade today, and enjoy your weekend.

A.F. Thornton