When I woke up this morning, I reminded myself what a privilege it is to undertake this endeavor every day and enjoy the freedom it brings. It is not always easy. In fact, it is never easy. It takes many observations over many years to begin to discern financial market behavior and patterns.

One way I try to understand what is happening at the moment, is to find one or two base periods in the past to compare to the period at hand. That is the advantage of experience. Generally, I have lived a similar period having traded and invested for half a generation.

As to the recovery, 1987. 2000, and 2009 come to mind. I draw many inferences and comparisons to those periods. As to the current market perhaps peaking (short-term) and correcting, there is no better comparison than 1999. I think to myself ‘giddy is as giddy does.’

Jim Rogers, cofounder of the Quantum Fund, and one of the best investors of our generation, faced a dilemma similar to what I am feeling now in 1999. He saw the giddiness of the crowd then, and even shorted the market a few times. Frustrated to his core, he could not take it any longer. My understanding is that he bought some long-term put options, LEAPS as they are called that bet on the market rolling over. Then he left New York, jumped on his motorcycle and traveled the entire globe.

For me, that is quite tempting. This is the free, public version of what I do. You don’t pay for it, so maybe that is all it is worth. I had no problem telling the public to buy after the rout last fall. Over the past three months, I have not been so inclined. The Navigator strategy was up nearly 400% at the end of the first quarter. Now, I am not even supposed to tell you that unless I get licensed. The borderline between a newsletter and registering as an advisor is a fine line. If I get too specific, I have to register. I am not so inclined at the moment, I don’t want to complicate my simple life.

But the dilemma is much the same. If I tell you to take a swing position, as I did last week with the XLF, you see what can happen in just one bad day. We were stopped out on Friday. But I was on a plane and could not send out a note. Granted, you knew where the stop was, but a note still helps. I am sure it was a dilemma. And then I fear that when you got the update Monday, if you sold into the weakness, it would have been better to wait just a day and you would have exited better. It can be quite a dilemma.

We passed the 60% retracement of the decline overnight. That likely means a test of the old highs. We had not yet reached our upside targets on Friday when this decline hit, so they remain open. And we cannot say for sure if monthly options expiration caused Friday and Monday to be a one-off decline like last month’s failed bear breakdown.

So my conclusion is this; I am not going to jump on a motorcycle but I have been around long enough that I am not going to issue a Navigator buy signal until we see a correction of a decent magnitude. That will come sooner rather than later. The monthly S&P 500 chart is in a clear, rising wedge / ending diagonal pattern. That portends the end of a run, not the beginning. It likely means more than a 10% correction ahead that lasts one to three months as it zigs and zags.

We are entering the most seasonally weak period of the year for stocks. We have the monthly chart wedge. There are plenty of catalysts circling. We just need to be patient. If I see any one-offs in a sector here or there, I will let you know. In the meantime, I am satisfied to day-trade until the moment arrives to take a longer-term position.

Today’s Plan

The levels I will be watching today are (i) the point of control (POC or high volume node) recently tagged in three different sessions at 4369.75; (ii) the overnight high at 4361.25, yesterday’s regular session (RTH) high (also yesterday’s settlement)at 4361.25; (iii) yesterday’s POC at 4340; and (iv) Monday’s (July 20) virgin (untouched) point of control (VPOC) at 4315. Always remember that these are the levels I am prioritizing today for rejection or acceptance to help filter the noise, but they are not the only levels where the market could react.

Yesterday’s RTH activity was balancing to higher, leaving the VPOC from 7.20 in its wake. Overnight activity was almost all higher until the higher jobless claims put a slight damper on things, taking prices back down into range. Overall, the reaction seems minor at this point as current prices are holding above yesterday’s value area.

While the short covering rally of 7.20 was very emotional with poor structure, yesterday’s more two sided trade confirmed a lot of the reversal, essentially proving those buyers right for now. Leaving another VPOC today alongside the one from Tuesday would be further confirmation that buyers are in control.

Other than being short term overbought with some potential overhead supply from the Globex session, there is little shock and awe and not much indication as to how the open will play out. The better trades will develop later rather than earlier.

Any strength over the ONH should target that multiple POC area. Consider this a high volume node where prices should be attracted. Weakness should target the POC as this is what markets “should” do. As mentioned above, consider any failure to do so a sign of strength.

A.F. Thornton