Founders’ Trading Notes – 10/3/2022

Good morning:

We are coming into Monday morning with nuances that will make day-trading unwise today. The nuances include an emergency Fed meeting and multiple Fed governors speaking. Given all we see and while we came into the new calendar quarter neutral, we are on high alert for a swing buy signal for swing traders.

The bear case currently rests on four pillars — excessive valuations, inflation, a hostile Fed, and a looming (if not already underway) recession. I am sympathetic to all four and lean bearish myself, but the end of the world is unlikely at hand.

As an example. various leading indicators of inflation such as commodity prices have been waning lately. But note OPEC is planning to cut production.

There is evidence in positioning, short interest, put volumes, surging CDS, and rising cash levels that we are approaching panic levels. The risk is not so much that the bears are wrong as they appear overly eager.

For day trading today, I would ride a rally up to +1.5% on the upside and then look to short. Or, if the price drops by -3% on the downside first, I might consider shorting. Anything in between is neutral.

The 5-day EMA at 3663.75 would be the first pillar to conquer.

A.F. Thornton