Morning Notes – 8/17/2022

Good Morning:

• Not surprisingly, the S&P 500 Index encountered resistance yesterday at the 200-day line amid an overbought price advance.
• A liquidation break ensued, and the price will open on our 5-day stop line this morning around 4266, also below the Navigator Algo Trigger stop at 4277.
• If the market spends a few hours below the 4266 level, I would consider exiting or at least reducing any remaining long positions you may be holding on a swing-trading basis. If you have the tolerance, a daily close below the 5-day line is a preferable stop, in case price dips below the 5-day line intraday only to whipsaw back above the line by the close.
• We can quote support and resistance numbers, and even stops, but this is where trading is as much an art as it is a science. You learn how to interpret these levels in real time, and with experience, which is why you should subscribe to the Trading Room. We will be in the room tomorrow and Friday.
• Note that Friday is monthly options expiration, which may begin to distort our usual trading process as early as tomorrow. 
• We remain in cash, waiting for a well-needed breather before making our next move.
• If the market is finally ready to revert to the mean, keep in mind that any such pullback is usually bought by those who have remained on the sidelines and missed the melt-up.
• So don’t necessarily assume that the bear is reasserting itself, at least on this first pullback.
• Time and price will telegraph the intermediate picture as any pullback further develops.
• Flat retail sales were reported this morning, adding to the recession case. 
• Today’s DEM shows volatility at 40 points plus or minus yesterday’s settlement (4307.75). The WEM remains between 4205 and 4355.
• As mentioned the past few days, the Algo already painted exhaustion and sell alerts, further confirmed at yesterday’s close. The sell signals explain why we remain in cash and slightly bearish.
• At this writing, resistance today is at 4300, and then 4327.50. Support is at 4233, then 4205. Significant support and the highest volume node below is at 4120. Also, the intersection of the important moving averages, including the 21-day line or mean, is at 4120. As price breaches a level, it reverses polarity.
• Nothing prevents the market from moving higher up to the WEM high at 4355, even with a minor pullback. And higher remains the so-called “pain” trade – but the negative sentiment that supported this rally and turn has finally disappated.
• If this pullback takes us below 4120, then you can consider the bear has reasserted itself. Above 4120, any decline would be considered normal and part of a new bull market. 

As always, stay tuned.

A.F. Thornton