For Every Effect – There is a Cause

• We were closing the Trading Room yesterday when an astounding “V” reversal slowly began to take shape. Like a dunce, I thought the signal had already presented at midnight. Then I realized I had misread my notes and the signal actually reached its max intensity at noon EST. In retrospect, The reversal began right on cue.
• The reversal must have been somewhat of a surprise to most traders. After three initial bull bars, our Trading Room started on a short signal yesterday. The sell-off was severe.
• Typically, there is an 80% chance that the market would only recover to the mean and continue selling. But that did not happen.
• I hesitated to take any short signals yesterday due to the anticipated Helio Algorithm turn. A temporary signal seemed inconsistent with the predicted “reversal,” which usually lasts a few days.
• Ultimately, we could have worked both sides of yesterday’s trade – but one cannot know that beforehand.
• I even had my doubts as the buy signal began to develop. It looked weak, even though the market was oversold and too far below the mean to be sustainable. Anyway, the rest is history.
• I cannot remember seeing such a stunning “V” reversal in a very long time. All we needed to do from the buy signal was follow our Athene algorithm (formerly the Navigator).
• So where does that leave us this morning? We have a slew of economic reports pre-market. The reports include the PCE inflation report. So the market will be volatile. And the reports have the power to negate the reversal, but typically they don’t.
• And The Helio Algorithm turn is rarely a one-day wonder, though it does not give us a price or time target, just a reversal.
• But here is what we do know. Price reached the bull trendline (October 13th, January 3rd) yesterday and found buyers.
• That follows the bears’ February 21st breakdown with minimum follow-through yesterday, so bears are likely disappointed. Their follow-through is not ideal.
• Yesterday was an outside trading range pin bar that shows hesitation at the 4,000 big round number, which has been an important price level for the past year.
• There are targets below for the bears. However, the market still shows likely trading range behavior.
• With tailwinds from the Helio turn, the bulls might continue to get a bounce to test the 2/17 breakdown from 4060.
• Traders will pay close attention today to see how determined the bears are to continue selling.
• If the bears begin to hesitate and buy back shorts, bulls will buy aggressively, increasing the probability of the market continuing higher to test the 4060 Breakdown low.
• If the market cannot pierce the 4060 level on the way back up,  it could continue the correction and test the January pivot lows around 3911.
• Overall, the odds favor the bears getting disappointed over the next day or two. The market likely continues to go sideways around the 4,000 big round number. The lower probability event would be a strong downside breakout.
• Our algos remain in a Macro Swing Sell (short) Signal from February 3rd.

A.F. Thornton