Here is What Comes Next... | Archimedes Methodologies

Good Morning:

Remember the video we put out above around the October bottom? My favorite part of the scene is the guy waving out the window at the other guy trying to get on the train that is leaving. That must be what it was like to be short yesterday.
I think I will take a victory lap on this video. But dont worry, i wont let it go to my head. This business always has some humble pie to serve up when you get cocky.
I will be in the Trading Room for the morning session today. I am working on a one-week free trial to those who may want to give it a try.
Futures are off marginally to 4077 after a quiet overnight session.
The 4100 Call Wall is now near-term resistance, with 4124 slated to provide additional resistance above.
Support today shows at 4055 (SPY405) to 4050, with 4000 as key bull/bear threshold support.
Back in positive Gamma territory, we now look for volatility to begin contracting sharply, implying average daily S&P 500 Cash Index moves <=1%.
Still, bulls are not quite on solid ground, as the options market still shows some anxiety around the PCE/ISM reports today and Non-Farm payrolls tomorrow.
This can be seen in the SPX options term structure. Right now, the shortest-dated implied volatility is above the longer-dated.
The implication is that traders are worried about a “hot” print in today and tomorrow’s data, which could quickly unwind yesterday’s gains.
And some event volatility premium remains around the 12/14 Fed Meeting and rate announcement.
For now, there is room for the market to grind a little higher, where it will encounter the bear market down trendline while it fights to hold and conquer the 200-day line around 4075.
Also, note from the chart below that the price is approaching the center of the 20-week cycle. The cycle would have peaked in the first 1/3 of the semi-circle in a more bearish environment. Like the previous 20-week cycle that brought us the October 13th low, this cycle shows early, bullish intentions.

Yesterday’s price action continues to be a stunner and an indication of the unrelenting focus required in this environment. I reprinted the hourly chart with our signals above.
We came in yesterday morning with our strategies in cash and our more aggressive clients short from the 11/24 sell signal and peak. I almost wanted to take the morning off.
But our algos started painting buy signals two hours before Fed Chairman Powell spoke. It paid to reverse course, though it was a difficult choice in an environment where the consensus view expected a crash after Fed Chairman Powell’s speech.
As a side note, several Fed Governors are hitting the speaking circuit today, and I am already wondering whether they will try to walk back Chairman Powell’s dovish tone yesterday.
For now, It has paid to manage from the hourly chart perspective in this DTE ( one-day to expiration) options environment.

A reprint of yesterday’s algo buy signals (with the 11/24 sell signal) appears in the chart above. While we enjoyed the gains, let’s note for the record that days like yesterday and 11/10 (brought to us by the DTE options crowd) will also present in reverse, so don’t take your proverbial eye off the ball.
Let’s see if there is enough follow-through for the market to grind a little higher from here before the cycles catch up. The algos will guide us, and we will stick to the hourly charts for swing trading until something changes.

A.F. Thornton

Here is What Comes Next…

Here is What Comes Next…

AF Thornton

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