Afternoon Notes – 3/23/2022

Good Afternoon:

• We are here to make a profit, which could not have been more apparent to me this morning when the SPY and QQQ gapped down (not a true gap) below our stops for the Navigator Swing Trader™ accounts.
• I know it will be impossible to maintain this record, but we have not had a single losing round trip in the strategy so far this year.
• But if I pull the trigger too soon sometimes, it is because I am rarely rewarded for holding overnight in this kind of market. Last night was no exception.
• Any gap is a chance to get an instant sentiment reading on the market. If the gap lower struggles to fill, you likely have a challenging day ahead for long positions. Capital preservation is key in this environment.
• Gap Rules are still helpful even in cases where there is no True Gap.
• So we road the first rally attempt higher after the Gap down. I found the rally attempt weak, more so on the SPY than the QQQ, so we sold at the first reversal pivot (see above).
• The market respected our support and resistance lines announced this morning which made the job easier. There was definitely a struggle to hold some of the key moving averages exceeded yesterday. The 200-day line is key to the SPY’s struggle as the 50-day line is to the QQQ. You have to convert the SPX support and resistance numbers announced in the morning notes to the SPY and QQQ.
• We got out at 447.25 on the SPY and 356 on the QQQ.
• We broke even on the SPY and picked up 5.5 points on the QQQs.
• We are now back to cash and will monitor the situation from here.
• The market remains incredibly challenging. I would liken it to playing dominos.
• First, we have the dislocation in commodities. Many of those markets (and several large dealers) are broken. It creates a “doom loop” of sorts that feeds on itself.
• The dislocation in commodity markets is far from over and will continue to spill into other markets. Remember that commodity markets deal with real farmers and food. Food prices could shock consumers over the next year, and, sadly, many people will suffer and starve.
• The next domino to fall was the bond market, and it is getting worse. We are on the verge of breaking the 50-year downtrend in interest rates – at least on the 10-year Treasury, arguably the most critical note and rate. Most loans and mortgages price from the 10-year benchmark rate. 
• Recall that we already broke the long-term downtrend in commodities. Will interest rates follow?
• The subsequent two dominos to fall will be currencies and the stock market.
• The dollar may actually rally at first as U.S. rates head higher versus Europe.
• Usually, the rising rates and rising dollar will cause the stock market to fall further. New stock market lows are likely to follow.
• In more favorable circumstances in 2018, rising rates caused the $8 trillion corporate bond market to blow up, and stocks crashed 20% in a matter of weeks. The stock market could still be on borrowed time.
• The latest narrative is that money will flow into stocks from bonds as a supposed inflation hedge. I don’t buy it long term – but whatever works for now.
• Here is one positive today – the 20-year treasury auction went well with almost record demand. That helps keep the yield curve flat, which is better than inverted.
• Another thought I had today is that we have these wars and crises every 80-years or so because all the people who had the knowledge and experience from the last one (Depression and World War II) have passed. We could use their advice now on how to avoid this catastrophe.
• I am still obsessing on the crazy survey I mentioned yesterday that 37% are in favor of Nuclear War with Russia. The survey is giving me nightmares. The only people who would favor a nuclear war are those who have never experienced one = which is nearly everyone alive. 
• I think the market will hang by its fingernails until the end of the calendar quarter. We are likely to get one more round trip out of it on the long side.

Stay tuned,

A.F. Thornton