Founder's Morning Notes - 03/04/2022 | Archimedes Methodologies

I still lie awake at night, wondering how we get through this. Our Country is in debt up to its ears. The average person faces accelerating inflation, which likely worsens before it gets better. The typical family is one paycheck away from disaster. Our Country is in debt up to its ears and lacks leadership. Our national dialogue has deteriorated to nonsense.
In a sense, I believe that a “Fourth Turning” is like a purge, where the natural cycle corrects in the fourth generation.
As I came from a considerable wealth, my mother used to remind me about a similar phenomenon with families “Shirtsleeves to Shirtsleeves in Three Generations.” In Ireland (she is Irish), they call it “Clogs to Clogs in Three Generations.” My father was the third generation, and he personified the principle.
In this time, society will return to its root values and principles. There will be no other choice, or we will all be speaking Russian and Mandarin.
Hard times will expose the corruption of our elites – which is out of control.
And my mainstay – why do we tolerate Mexican Drug Cartels on our now “open” borders? There are so many outrageous things Americans accept as normal. It is a form of conditioning.
Yesterday’s look above and fail is now complete as the S&P 500 futures tagged the bottom of the balance range overnight as Russia attempted to capture the largest nuclear power plant in Ukraine, one of the ten largest in the world.
The Russians successfully captured the plant, which controls 25% of Ukraine’s electric power.
When Consumer Confidence had turned this low in the past, a recession soon followed without exception. The yield curve has flattened but is not inverted yet. An inverted yield curve (where short-term rates exceed long-term rates) would confirm the scenario.
All in all, Chairman Powell’s two days of testimony before Congress reassured the markets. Though he favors raising rates one-quarter of a point at the mid-March meeting, he says the Fed will be flexible and respond to the data. That is about all anyone could ask for in the circumstances.
Of course, that is what the Fed has been doing for the last few years. How is that working for us?
The January Employment figures exceeded expectations this morning, but I have not delved into the numbers to see how much they are fudged. The market is seeing a bounce on the number at this writing. Average earnings were up 5% over the past year. That sounds great until you realize that the stated inflation rate was 8% and the real rate like was higher.

Yesterday’s look above and fail completed in Globex, as the price almost tagged the lower balance boundary. We are back below the 5-day line and the Volatility Trigger which is bearish.
Price remains inside the balance area, so keep Balance Rules handy if we approach the lower edge around 4275. I expect 4275 to 4300 to be strong support today.
Resistance should be encountered at 4350 and then at 4400. 4400 is formidable – any sustained break of 4400 should be considered bullish.
The WEM Low sits at 4275. Since weekly expiration occurs at today’s close, expect dealers to defend the WEM Low vigorously.

The VIX (Volatility Index) term structure remains in contango suggesting short-dated puts remain in high demand. Traders may step up to sell puts that expire this afternoon as I doubt traders will want to enter the weekend short volatility.
Selling puts this afternoon could bring us a short-covering rally at the end of the day, but it is likely to be reversed Monday.
The bottom line is I anticipate 4400-4500 to remain as stiff resistance into the mid-month Fed meeting.
Because of the significant negative gamma and high implied volatility, the downside remains vulnerable to sharp “steps” lower, with 4275 & 4180 showing as key stops. 4000-4100 should be the ultimate lower bound into that March 16-18th time frame.
Overnight inventory is net short, and we are slated to Gap down, so there could be a bounce at the open from overnight profit-taking. Since the Gap is a True Gap, apply Gap Rules this morning. The extent of the Gap-fill is your first sentiment indicator.
Gauge the strength or weakness of the market by the tone and amount of any gap-fill. If the market has zero corrective activity early, that is the most bearish outcome.
If the market does fall to the WEM low, around 4275, it won’t be easy to trade. Due to options expiring and related distortions, I don’t usually trade on Fridays.

A.F. Thornton

Founder’s Morning Notes – 03/04/2022

Founder’s Morning Notes – 03/04/2022

AF Thornton

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Founder’s Morning Notes – 03/04/2022

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