Luck o’ the Irish

Good Morning:

• I often complain about the Leprechauns because they always try to steal my pot of gold. Fortunately, they only bother the Irish, kind of a spiritual rule.
• Yesterday was no exception. We rolled back into a Navigator Swing buy signal at 4062.50 on Tuesday, but I wanted to wait to execute the signal until the Fed announced its rate decision yesterday (Wednesday).
• So what do I do? I wait around, enjoying a leisurely morning yawning until 2:00 pm EST.
• Right as the clock approaches the zero hour, in come the Leprechauns. I can almost feel their mischievous little plots as they unfold. Anything to distract me so they can steal my gold.
• First, my phone rings, and it is the wife. But she cannot hear me. When she calls, I must answer, or she worries. I start diagnosing the problem. I reboot my phone. Nothing works.
• Meanwhile, it was 1:59. I dropped the phone project and ran to my computer. Now, my computer is running at 5 miles per hour because the Trading Room is dragging the speed as I am on a laptop at my temporary location in New York. My wife is attending to her mother, who is experiencing declining health.
• My goal was to buy around the 5-EMA, and Navigator buy signal at 4062.50. I go to execute a few futures contracts, but the trading line is down, likely jammed with others trading the Fed.
• At this point, it is Leprechauns 2, AF Thornton 0.
• So I punt with some SPY (at the money) calls at the ES 4059 level.
• Now, a brief lesson in options. A plain Call will give you some participation in an up move, but a volatility collapse matching the up move can mute the return. It is called a volatility crush in industry parlance. A preferable trade is to use a call spread to neutralize the volatility component – but there is no time to calculate one as the clock is ticking and the futures line is still jammed.
• The market was moving fast. Even if I had done a spread, likely, I would not have set the top side high enough. Anyway, I was set with the straight calls.
• Having beaten the Leprechauns for once, I set some stop alarms (you cannot set actual stops on options). I satisfied myself that the Founders Group was in position and then went to grab a cup of coffee and plot my revenge on the Leprechauns.
• I came back about 45 minutes later and was pleased that the stop alarms had not sounded, but I was shocked to find the S&P 500 nearly 100 points higher in 45 minutes. I could not believe the index had moved so far so fast.
• So I sold off all but a single Call for a runner, which the Founders’ Group maintains for the Navigator Swing Buy.
• I don’t recall such a swift advance in such a short period in my long career.
• Unless this move turns out to be a spike and small pullback bull channel, the market might be ahead of itself, and the “M” pattern discussed Tuesday is still valid up to the 4180 spike high on 12/13 – reflected on the Emini futures contract. But the cash index closed a bull body above the 12/13 high. So there is some conflict between the two indexes.
• And what can be said about the Fed decision and such a spike move? The Fed says it will continue to raise rates, but Fed Chair Powell took a dovish tone in the press conference. Bulls and bears both had something to celebrate. 
• But as I have been saying over the past few weeks and even though it was not my preferred analysis, the market goes up when it wants to and the weight of the short-term evidence favored market gains on the Fed announcement. And though it was a quick turnaround, the Navigator Algorithm had flashed a buy signal the day before.
• The cycles remain solidly in place, and the market will soon catch up to them. But as in October, the “crash” and “depression” called for by the crowd seem very unlikely for now. 
• As to these sudden moves and spikes, we need to consider them from now on and try our best not to be on the other side. These are Gamma squeezes caused by the DTE crowd. 
• The DTE crowd, the same crowd that brought us MEME stocks like Gamestop and AMC, buys and sells options that expire the same or the next day. They try (and are often successful) in driving dealers (who take the other side of the trade) into panic buying or selling to keep their portfolio Deltas neutral. 
• The DTE strategy causes considerable volatility on a day-to-day basis. But it is not going away soon.
• As long as the Navigator Swing Buy signal is in gear, we look to add positions on the 5-day line with a stop and reduce positions when the market gets too far away (two standard deviations) from the line.

A.F. Thornton