Morning Notes - 5/17/2022 | Archimedes Methodologies

Good morning:

Lack of follow-through marred the latest rally attempt yesterday, though it looks better this morning with a 1% overnight move higher putting Gap Rules into play this morning.
As always, use the Gap fill/no-fill as your first sentiment barometer.
Resistance is at 4095 followed by 4115 (SPY 410). Support shows at 4015 (SPY 400).
There is no obvious catalyst for the overnight recovery. This setup feels a lot like that of late April, when the market (also net short) launched higher into VIX monthly expiration (tomorrow morning) and carried into a sizable April monthly expiration on the following Friday.
Back then, markets rallied on Tuesday and Wednesday, pinned on Thursday, and sharply reverted all their gains on expiration Friday.
Until proven otherwise, this move up should be seen as a short covering rally. It could extend into Friday, but it may be subject to quick and violent reversals. Subscribers will continue to receive signals to move their stops up with the rally.
Our swing model subscribers are in a buy signal at 4019.75. We will move our stop up to 4033.25 this morning just to ensure a profit. Consider a $99 monthly subscription as these subscribers are enjoying a phenomenal year – our initial $10,000 starting balance is now just below $50,000.
The main obstacle to a sustained rally is to conquer former support around 4100 – 4150 – now resistance. And we need to see real, institutional buying not merely short covering.
A reversal pattern on the 24-hour charts indicates a measured move as high as 4200. And though I don’t expect new highs, I believe that the market could recover up to 4300 before it stalls out again.

For now, the first target is the 21-day line or mean at 4150 or so.
Use this rally to cull your portfolio holdings – this bear is not over. You cannot go wrong if you are selective. Quality rules in these kinds of environments. Hard assets and real earnings are especially valued now.
As mentioned yesterday, the street is net short (also in short-dated options) expiring at monthly/weekly expiration on Friday, so Vanna flows should provide positive tailwinds this week.
All of this is part of bottoming the 80-day cycle – which is due to bottom between now and early June. If all goes according to plan, the next phase of the bear will start in late summer into the usual September/October seasonal weakness and 40-week cycle trough.
We get retail sales and industrial production numbers this morning which will give us some additional insight into the current quarter’s GDP. Existing home sales come out later this week.
We also have some of the big retailers reporting to wrap up 1st quarter earnings this week.
By Friday, we should have a good idea of how strong or weak the economy has become. Bad is good right now, as it takes the pressure off rate increases. 10-year rates seem contained at the 3% resistance level for now.
Geopolitics continues to be a wildcard – but do not forget that a rally catalyst would ensue if Russia does back off its aggression.
Let us see where this movie from the depths of market despair takes us. There is no lack of positive and negative opinions relating to the matter – that is for sure.

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Morning Notes – 5/17/2022

Morning Notes – 5/17/2022

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AF Thornton

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Morning Notes – 5/17/2022

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