Pre-Market Outlook – 12/7/2021

Pre-Market Outlook – 12/7/2021

Today is Pearl Harbor Day. As with most events of that era, we are now more than 80 years out from that Fourth Turning. 80-years is the magic cycle from Fourth Turning to Fourth Turning. As you can see from our own Fourth Turning thus far, these turnings are not fun. I simply hope this one will be over soon.

Today we will see how the President’s conversation with Vladimir Putin goes. Putin has now amassed nearly 200,000 troops on Ukraine’s border. If Putin invades, Biden has threatened to take Russia out of the “SWIFT” banking system. Since Russia holds real gold now instead of U.S. Treasury ‘paper”, I am not sure he cares. It is a bit like bringing a sword to a gunfight. Maybe arming Ukraine is a better idea.

In addition to the Russia wildcard, we still have China ready to forcibly take Taiwan. And they want to build a new military base on one of the harbors they foreclosed on in the Atlantic on the West Coast of Africa. Perceptibly, that is too close to home for the U.S., even though our military bases surround China. Who said life is fair? Anyway, Taiwan is more concerning because they make most of our semiconductors.

China probably won’t cause any trouble until after the Winter Olympics in Beijing early next year. By the way, our “diplomats” are not allowed to attend as punishment for China’s human rights abuses. Big deal.

China points to all the January 6th Trump supporters still sitting and abused as political prisoners in Washington D.C. As China says, we have no room to criticize them. But then, hypocrisy is plentiful in our nation’s capital these days. Maybe it has always been so.

Am I just griping? No. I am reminding you to use stops. We are one news story away from disaster. No matter what, I always use a “disaster” stop any time I am free trading in the market. It might be 15 points below – but it is always there.

Since the market is dynamic, I use a 3 ATR (Average True Range) stop. I will expand more on how to set these some other time. It is there just in case something comes out of left field (no pun intended), even though I am otherwise bullish (or bearish) as the case may be.

All the recent consternation stems from the Fed potentially accelerating the taper next week, but the European Central Bank has no similar plans. Accelerating the taper is not a negative, just less of a positive. The end of the taper in Q1 or Q2 is more problematic. Raising interest rates is even more challenging.

Regardless of this rally from deeply oversold conditions, please don’t lose sight of where we find ourselves. If the jet engines quit, It remains a long jump from 30,000 feet without a parachute.

Swing Traders

Refer to yesterday’s discussion as to why we are bouncing. We got the bounce and closed slightly above the 5-day line, a net positive, but also right below the Algo trigger and 21-day line. The Dow Industrials led, as I had suspected would be the case. The laggards led us down, so they are the first to recover.

I hope you took my advice and covered any short positions on the initial morning weakness. My long S&P 500 call spread trade from the close Friday afternoon bagged a 60+ point profit, but I wish I had held onto it now. Our Globex sisters rocked the market overnight, and we will gap right through buy signals this morning. Robbed in the middle of the night again!

So with follow through this morning, we have our Navigator Algorithm buy signal. But we cannot chase the market. Moreover, we could now be in a trading range – so I don’t necessarily expect a move to new highs. I will alert you to any entry points on a reconnect to the 5-day line. Also, we need to see if New York follows through on Asian and European enthusiasm.

While the major indices don’t seem to have corrected that much, they are disguising massive damage under the hood. For example. almost a third of the stocks in the Nasdaq Composite are down 50% from highs. It is a two-tiered market, a less than ideal scenario.

After the shorts run for the exits this morning, we may (and likely will) roll down again for a retest, perhaps into next week’s Fed meeting. Let’s see what happens, and I will alert you to any entries now that the Navigator has rendered a preliminary buy signal.

Day Traders

We will Gap open right to resistance at 4660, on inventory that is 100% long overnight. Gap Rules apply. Rule #4 seems most applicable this morning. While one would expect a counter auction on such heavy overnight inventory, a lot of the action could be short-covering and there will be plenty more this morning. That is why I refer back to Gap Rule #4.

And it seems we are only a stone’s throw from new highs given the volatility at hand. I am betting on a Gap-fill this morning, but I cannot guarantee it. There are a lot of shorts out there waiting to cover.

4700 is the next goal, and then the old high is just below 4750. I am sitting today out until a storyline emerges. It is too late to chase longs unless we get a complete gap fill, which is a distinct possibility. More probable is a pinned trading range.

A.F. Thornton

AF Thornton


A.F. "Arthur" Thornton is an expert in logic, risk/reward quantification, market fractals, pattern recognition and asset class behavioral analysis with 34 years devoted to developing algorithmic and quantitative trading systems. In addition to trading his own capital, Mr. Thornton designs custom algorithmic and quantitative trading systems for a small and exclusive group of exceptionally qualified traders.


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