Morning Notes – 6/28/2022

• Our working thesis is that the first Bear leg (1-down) is complete at the June low and is a leading diagonal much like the start of the 2008-2009 Bear.
• The S&P 500 is likely to retrace 50% (4150) to 61.8% (4338) of the January to June decline in a (2-up) wave retracement. Again, the 2008-2009 Bear is the best analogy.
• Be sure to look at the Current Stock Market Thesis, which is a complete analysis of the Big Picture.
• This retracement rally aligns with the seasonally strong summer rally period, quarterly rebalancing, and monthly options expiration (Thursday).
• This week, the WEM Sandbox is 3815 to 4015 – Today, the DEM Sandbox is 3855 to 3965.
• The Navigator Algorithm gave a new buy signal on the daily chart at last Thursday’s close or 3888.75.
• The short-term trend and context is up. For the most part, we want to look for long trades this week on pullbacks as long as the rally prevails.
• But we are still in a bear market in the intermediate trend and trading right on the Volatility Trigger at 3902.
• Below the Volatility Trigger, we are in a negative gamma regime – dealers still must sell into declines and buy into rallies, exacerbating and lengthening the move in both directions.
• Above 3902, Dealers will sell rallies and buy declines, reducing volatility and resulting in “mean reversion” price behavior.
• The key inflection point today and for the rest of this week’s sandbox is the super high-volume node and key cluster on the daily chart at 3900-3920. The node is a significant hurdle to conquer coming from either direction.
• There are significant air pockets above and below the node, allowing the market to move freely (almost unobstructed) through the zones.
• The 21-day line (mean) at 3902, last week and Friday’s high at 3920, the 50% retracement of the previous down leg at 3904, and the midpoint of June’s monthly bar all cluster here.
• It would be short-term bullish if the market could stay above these levels, and we could look to them as support.
• The opposite is also true. If this rally fails early, this is the level to push it back down.
• The last few sessions appear to be forming a bullish flag on the daily chart. Overnight traders pressed the top and bottom of yesterday’s range, running the stops, and it looks like we will open towards the top of the range this morning.
• If the rally fails here, the relatively minor support in the air pocket below is Friday’s POC at 3890, its midpoint at 3875, the 5-day line at 3856 (also the low volume node of the pocket), Friday’s breakup candle low at 3831, and then the WEM low at 3815.
• Though ostensibly outside this week’s projected range, the air pocket ends at 3761, and the next super high-volume node on the daily chart is 3688.
• My best judgment is that the market is more likely than not to use the bullish seasonal bias, together with the tailwinds associated with this Thursday’s month and quarter-end, to push up to the WEM high this week at 4015.
• The scant resistance traveling north to the 4015 WEM high lies at the bottom of a gap around 3960, and the downtrend supply line from March at about 3995 (tracking close to the falling 50-day line). (See chart above).
• The market has to move higher almost immediately to maintain the “V” reversal, or a retest of the June low will happen sooner rather than later.
• The video from this morning’s live session is in editing and will be posted later today. I will be trading live in the Trading Room this morning for the first few hours of the session.

Good Luck Today!

A.F. Thornton