Interim Update – 10/31/2022

Good Morning:

• I will be brief this morning, saving most of my bloviating for the end-of-month discussion.
• Futures have pulled back to 3885, consolidating Friday’s large gains.
• Our Call Wall jumped higher to SPX 4000 and SPY 395. For a change, the options market is supporting higher prices.
• Accordingly, I see 3900 providing some resistance into Wednesday’s FOMC, with 3950 as the more formidable obstacle. Support shows at 3850 and 3800.
• The nominal 20-Week cycle (currently averaging about 16 weeks) and the 10/13 Navigator Swing Strategy buy signal have generally supported buying dips and selling rips on the hourly charts. 
• However, price is in its third push higher from the 10/13 swing low, so we advise caution. A 1/3 to 1/2 retracement of the rally off Wednesday’s Fed announcement would not surprise me before the market is in a position to move higher, if at all.
• After that, the next intermediate upside target is 4100 or so. If this rally fails altogether, the downside targets are unmentionables.
• Either way, the next important market turn (from whatever direction precedes it) will be November 7th around noon EST.
• The last entry for the Founder’s Group was Thursday during Globex at 3685, which we liquidated Friday at 3915 at the close. We did not communicate this trade publicly since it occurred in the overnight session.
• As today is month-end and Wednesday is the next Fed announcement, we prefer to be in cash until Wednesday’s Fed announcement. 
• From a day trading perspective, there is not much to do today with month-end cross-currents, though there should be some decent day trading tomorrow as the street positions for the Fed announcement.
• We have a PMI report this morning, so be careful at 9:45 am EST if you choose to trade. Another Dallas Fed Business Manufacturing Index report is due at 10:30 am EST.
• Bear markets don’t end until the generals fall, and they took a big spill last week. 
• Look no further than the FAANG stocks, such as Google, Amazon, etc. No doubt that new leaders and acronyms will emerge in the recent bull market in the future.
• Further evidence of the strength of the Nominal 20-week cycle appeared when the market shrugged off the earnings disappointments.
• Fundamentals tend to take a back seat to cycles most of the time. When the cycle bottoms and unfolds, the press finds the news to explain it, not the reverse.
• Much will be the same for the Fed meeting. I do not expect Powell to be dovish, especially in light of the strength of the current rally, which permits him to continue his tightening path. 
• It would be different if the stock market was tanking as we approached the meeting – but it isn’t. That is the problem that seems to escape the crowd’s attention. The better the stock market, the easier it is for the Fed to normalize interest rates and sell off its balance sheet.
• My important intermediate and short-term cycles bottomed on 10/13, but the 18-month and many longer cycles are unresolved. So enjoy the reprieve – it may be your last chance to cull your holdings before the final leg of the bear presents into the spring.
• At this point in other secular bears, the market rallied for 6-9 weeks from the equivalent of our October 13th low. Then, the biggest leg of the bear unfolded.
• If that is the case, we can observe that 90% of investor losses came in the last 10% of the bear. So we will keep that in mind as we move along.
• Having said all that, it doesn’t pay to hold strong opinions, and I don’t; the price action will tell us what to do if we are willing to listen. If this turns out to be a “cyclical” instead of a “secular” bear – it is over.
• We follow the evidence wherever it leads us, which is why our returns exceeded 600% this year.
• Perhaps there is an advantage to my legal pedigree after all – I follow the evidence and build a case.
• This week, I will be in the Trading Room Tuesday, Wednesday (for the Fed announcement), and Thursday. We will broadcast Tom in the room starting at 11:30 am EST today and Rose on Friday. Tom will be live trading order flow, an important aspect of day trading. Rose will teach price action trading – the primary foundation necessary to succeed in this endeavor.

A.F. Thornton