Navigator Algorithms – 100% Cash
195-minute (half-day candles) Chart of S&P 500 Futures Index
Despite our holiday yesterday with our stock market closed, Globex futures still traded for the non-US markets. Indications are that we will open with a gap higher in the cash markets this morning. Interestingly, we have a discernable 5-wave advance from the February 1st low, indicating that this latest rally phase could peak today.
Hopefully, you had a chance to read Jeremy Grantham’s piece highlighted in last night’s post regarding the likely formation of debt and equity bubbles. From here, we have to trade what is in front of us, fully cognizant of the risks. The XLF and XLE still pique my interest if they can break out to new highs this week. The two sectors now sit at their most recent swing highs, leading to a double-top if the market fades.
Interest rates remain on a tear this morning – with the 10-year US Treasury Yield hitting new highs at 1.267%. Rates could be the catalyst for the next corrective phase in equities, so I am keeping a close eye on them.
The market has blown through most of my target, upper channel reference lines. The Weekly Expected Move range is roughly 114 points – with the upper reference at 3987 and the lower reference at 3883 (also near last week’s low). Perhaps the market will try to conquer the 4000 psychological level – or fall just short of it.
The opening gap would represent a breakout from the recent five-day balance where value (the area representing 70% of volume) was unchanged. Today’s trade will need to hold above the high of Friday (3935) to keep the balance breakout intact.
Because of the large and emotional single print late-day advance on Friday, spike rules also play. This morning’s open is the most bullish outcome if it can hold above the spike as per those rules. Acceptance back down within the spike will also confirm the higher prices.
As with all shortened weeks, we ignore the tiny distribution range from Globex yesterday and overnight. Key levels reference Friday’s trading.
Finally, gap rules are in play, and we have a solid (true) gap higher this morning. Overnight inventory is 100% net long, and if you put Sunday and Monday night’s distributions together, we are trading close to the midpoint of them. Early trade will be all about the gap fill or lack thereof.
As per the usual plan – let’s see how the market reacts to our four key reference points; the overnight high and low and Friday’s high and low. We will follow the market where it finds acceptance. Coming too far into Friday’s range could indicate that the move outside of the balance range has failed and would blunt the latest rally attempt, taking us back to retest 3900 or so.