Greater Fools

Navigator Algorithms - 94% Cash, 3% XLF Calls and 3% XLE Calls

It is extraordinarily mundane, hard work to create and program investment algorithms. I spent two full years and roughly $50,000 in losses (running the programs) to create the Navigator Algorithms. And then there were the 30-years of investment and trading experience that preceded (but enhanced) the resulting computer programs. Life is much easier now, as the computers do most of the work.

For everyone else who wants to make money, there is always the “Greater Fool Theory.” The theory relies on a bigger fool to pay an even higher price for the position I am ready to sell. The idea works remarkably well in the real world, at least until it doesn’t.

One measure of the number of greater fools in the Dot.Com era was the record public offerings of any company with “.com” in its name. These were nothing more than shell companies auctioned off at record prices to the public, most of which failed. Promoters were gaming the system.

The modern-day equivalent of the “.com” company is called a “SPAC” or Special Purpose Acquisition Company. I kid you not; this is a public offering of a “trust me” company. You give your money to the company, and the person running it says, “trust me to find a good company or investment to acquire.” This is the opposite of a typical public offering, where you invest in a company that you know what it is, does, and how successful it has been so far. The record number of these “dry powder” companies going public is surely a sign of too many fools still in the market. Half of all public offerings in 2020 were SPACs.

But it gets better. In the penultimate marriage of 2021 wokeness and greater fools, Colin Kapernick announced yesterday that he too is forming one of these “blank check” SPAC companies, hoping to raise $250 million in an IPO.

Think about the grift potential here. First, what investment bank would have the guts to turn him down? And when the bank contacts their best clients to invest, what client would have the guts to turn the bank down?

Now, I know absolutely nothing about Mr. Kapernick’s investment prowess. In fact, he might be quite astute and find his calling on Wall Street. One thing is for sure; I admire his moxie. But the rampant speculation in this market, as reflected by the record number of these “blank check” offerings, signifies that the short-term risks remain high, especially if all the fools are running out of money. And let’s face it, it does not matter who we elect as President; we still get Goldman Sachs in charge.

Today's Plan

There is not a lot of change from yesterday. Focusing on the S&P 500 futures, our primary model instrument, the overnight low held yesterday, and we punched on through to new highs. All of that continues to add to the piling on effect of unfilled gaps and untouched points of control below us with minimal overnight correction. Two of the last three overnight sessions have been 100% net long or close to it.

On the upside, there continues to be a lack of reference as we trade at new highs. The overnight high at 3925 is the main line in the sand above us, though we are approaching channel top boundaries. The Weekly Expected Move high is up around 3950. But overnight longs do not look well-positioned, contributing to the likelihood of a liquidation break soon.

Momentum divergences on the daily chart, combined with diminishing daily volume, continue to drive the algorithm trend strength into yellow or caution territory, as can be seen from the algorithm labels on the first chart above.

Be careful.

A.F. Thornton

Greater Fools

Navigator Algorithms - 94% Cash, 3% XLF Calls and 3% XLE Calls

Today's Plan

AF Thornton

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Greater Fools

Navigator Algorithms - 94% Cash, 3% XLF Calls and 3% XLE Calls

Today's Plan

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