Buy on the Canons – Sell on the Trumpets?

Navigator Algorithm Status: 100% Cash and Hunting

Ben Franklin coined “Buy on the Canons and Sell on the Trumpets” over 100 years ago. The anecdotal evidence supports him even in modern times:

But this morning, we encounter a volatile and dangerous situation on top of an already highly complicated macro backdrop. Unless this resolves quickly, sanctions and skyrocketing energy prices likely will accelerate the arrival of a U.S. recession.

On the Hunt for a Swing Low

This morning, we are on the hunt for a tradable low, as we have been for the past few sessions. Preferably, that low sits around 4050, give or take. The target recognizes the considerable options open interest and Gamma around 4000 on the S&P 500. The forming S&P 500 Index channel also supports the target (see Navigator Chart above and SPX chart below). This invasion severely alters the global order in place since World War II. Did I not warn you about Fourth Turnings?

It paid to take a long trade on the above-referenced invasions, but this invasion is somewhat distinguishable. This time we have a super nuclear power attacking a country because it can – and for no other ostensibly legitimate reason. Russia is capitalizing on Western weakness, much like Hitler did with Great Britain in World War II.

On the one hand, the backdrop could ease pressures on the Fed to tighten monetary policy. But I honestly cannot quantify whether the current situation exacerbates or ameliorates inflation pressures. My instinct is that inflation will worsen short-term (e.g., $100 plus per barrel oil prices) and decline as a recession unfolds.

Ironically this is the type of environment where you’d expect Fed intervention not tightening. Because the Fed didn’t pull back on monetary policy when it could, it has little ammunition left.

Many individual stocks have already crashed as the bubble bursts. Our job is to find opportunities in the carnage.

We have terrific returns year-to-date in both the leveraged and non-leveraged accounts. It would be easy to blow it in this kind of volatility. But I am considering deploying at least some cash today so stay alert.

There were bullish divergences in the S&P 500 index, as far as breadth, momentum, and strength at yesterday’s close. We will see how it looks this morning. I am surprised the overnight action isn’t worse.

The bottom line is that we should favor longs over shorts. Buying puts as Putin invades Ukraine is like asking for a quick insurance policy on your house when the house is already burning.

As mentioned above, let’s also watch the trend channels to confirm a long entry. Here is the S&P 500 cash index:

The NASDAQ 100 is even better formed:

Weakness begets weakness. We can trace the current situation to our disastrous withdrawal from Afghanistan. China invading Taiwan in the coming months will be traced to our inability to discourage this invasion.

One distinction is that China cannot afford to lose us economically, so it is a different animal. Comparatively, Russia is an economic blip on the radar screen. But China has bought off most of our elites (traitors) anyway, so China will likely take Taiwan with a whimper. By the way, I wonder if Ukraine now has buyer’s remorse with the Biden family payoffs? Serves them right,

I hate to state the obvious, but to quote Steve Bannon at War Room, “elections have consequences, and stolen elections have major consequences.” The evidence continues to mount that the Biden regime stole the election through multiple means, the latest being a comprehensive and illegal national ballot harvesting scheme. We are now bearing the consequences of an unqualified, incompetent, and cognitively impaired President. We would be far better off if an adult were running our government rather than a cognitively impaired septuagenarian.

Regardless of my opinions, this meltdown can become systemic, i.e., forced liquidations due to hedge funds blowing up, etc. Stops are critical in this environment. There are always one or two funds that hit the pavement in these circumstances. I would proceed cautiously in the circumstances.

Day Traders

Today may not be the best day to trade, as you could get crushed in the volatility. If you must trade, keep your positions smaller rather than larger and widen your stops to handle the volatility. Gamma is extremely negative across all indices / ETFs, and the VIX is near 37. The market is pricing in a 2.32% daily move. Overhead resistance is light at 4200 and more substantial at 4300. Support is at 4064 and 4000.

The markets should bounce on a test of the 4000 – 4050 area due to the forming channel. Be mindful that my ultimate targets remain 3600 and then 2400 as outlined in my Weekly Forecast. I don’t mean to suggest we achieve the latter targets this week. I expect it to take a while. However, 3600 is a slight possibility in a complete meltdown/crash or systemic dislocation.

Assuming that the 4050ish bounce scenario unfolds, there won’t be a lot of resistance back to 4300. But any rally will be short-lived without a sustainable reduction of put positions. It is doubtful that will happen before the March 16th-18th Fed meeting.

I am considering long positions at the target on a confirmed price pivot to hold up to and then cover at the Daily 5-EMA.

We will be gapping down at the open, so Gap Rules are in play. Overnight inventory is 100% net short. Be mindful of the size of this gap down per the rules.

Remember that gap fills or lack thereof are the first clues to strength or weakness. There is potential for early trade to work the gap fade move given the context.

Consider buying the high of the first one-minute bar or buy a cross back up through the open if there is an opening drive lower that reverses. Odds are increased if the overnight low is not taken out first. Monitor for continuation with an ultimate target of overnight halfback at 4165 or so.

Any fade that is only partial or fails quickly may be a short signal on a cross back through the open. This sort of “go with” trade can be relatively difficult to pull off as per gap rule #4. Use caution and monitor very closely for continuation with the understanding that when markets are piling on (100% o/n inventory true gap on top of weak close), reversals can be unpredictable and swift.

The best scenario would be a gap fill and green candle on the day. One can wish?

A.F Thornton