Founder's Trading Journal
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Pre-Market Outlook

Navigator Core Algorithm Status

ETH Daily ES

The daily trend is up, trading above the mean but tucked into a rising wedge corner visible on the daily and weekly charts. The market will try to hold 3750 this morning and the pattern likely completes a “5th” wave up from the March lows. We are looking at a total WEM range of 165 points for the week, and 50 points for the day.

We have been in a balance area for four days (see the profiles below). If we continue northward and find acceptance above the range, the first upper K-band is around the 3780 level with the second and WEM Hi sitting at 3840 or so.

Notably, a gap to new all-time highs this morning would be a yearly, monthly, weekly, and daily gap on the chart, something that likely has never presented before.

RTH 30-min ES

The trend is up with a true gap open. Gap rules are in play. We are going to open pushing the outside of the upper channel but from a flat band position. 

Narrative

Dominant market themes include a vaccination supported, broader-based economic recovery now supported by the stimulus package. We remain in the strongest seasonal strength period for stocks, which occurs from October through April. Tech profits continue to be rotated into prior, underperforming sectors. Although Congress recently took some of the punchbowls away from the Fed in terms of main street lending, Fed policy remains favorable. Election issues loom large this week but seemingly favor seating the Biden administration.

Investor sentiment remains a concern. Though excessive optimism has tapered a bit, as reflected in the CNN survey below. But record margin debt, confidence surveys, options speculation, stocks vs. GDP, and record IPO issuance remain at warning levels. The frothy sentiment exposes weaker hands, keeping the index vulnerable to almost daily news liquidation breaks.

Stops are more critical than normal in this environment. Make sure all your trend lines are up to date with the liquidation breaks.

Today's Key Levels

The ONH at 3772.75, the RTH / Balance Area High at 3753 and the Balance Area Low and top of gap at 3714.50 are the key levels to watch this morning as the market travels our usual quintet, consisting of last Thursday’s high and low, the overnight high and low and the cash open.

Volume Profiles

Key Economic Reports

Fed governors Evans, Bostic and Mester speak today, otherwise all eyes are on the election.

Morning Plan

The first potential on any large, true gap is always the potential for fill. But this morning balance rules apply as well.

This morning’s gap represents a look above the four-day balance area. We have the framework of balance rules to guide us.

Overnight inventory is net long but not 100% so. We are well off of the overnight high already which can often take some wind out of the sails of those ready to fade the bell.

Structure on the strong close on Thursday was quite poor and should be noted. The POC did not move higher and remained near the lows. The rallies left a lot of single prints which is more emotional and less sustainable buying, and more likely short-covering.

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