Morning Notes – 8/23/2022

• Yesterday was almost scary. While I expected (and we planned for) a test at 4120 from our exit to cash last week, I certainly did not anticipate getting there this quick, and we tagged the level overnight. As predicted yesterday, the expected moves are already on their way to underestimating volatility this week.
• It was scary yesterday that there were no buyers, and it almost felt like the market could crash. It was eery.
• We are opening on or near the WEM low this morning at 4145, already achieved and exceeded yesteday (Monday). It does not hurt to mark additional levels at 1.5 and 2 times the move for the two sigma outliers. We will see if the Dealers can contain this week’s losses here.
• Today’s DEM shows at 50 points plus or minus yesterday’s settlement at 4141.25. Today’s range (rounded) is set by the options market to be 4090 to 4190. The WEM remains between 4045 and 4310.
• Again, treat the WEM and DEM as rough guides. As you can see from the first chart above, the price is now below the options market Zero Gamma and Volatility Trigger, increasing negative gamma and volatility.
• Back to plan, I have indicated since last week that we would potentially see a low-risk entry point at the highest volume node in the correction around 4120. Price tagged the level and slightly below overnight, breaching yesterday’s low. We are on high alert for a low-risk entry point at the level.
• On a positive note, overnight traders could not keep the market below yesterday’s low and brought the market back into yesterday’s range pre-market. At the very least, the market should stall today and regurgitate the steep losses of the past two sessions. The key to the 4120 high volume node is that the market balanced there twice, once in May and once in August.
• Below the 4120 level, the market looks more bearish, but there is bull thesis tolerance to the 50-day line at 3976 and the lower end of the Fib range at 3900. Anything below 3900, defending a new bull market here is nearly impossible, and one would have to accept a potential resumption of the bear.
• For today, if the market can climb back into the WEM range and find acceptance above yesterday’s halfback at 4155, I would be potentially looking for long trades or responsive trading. Otherwise, the downtrend is likely to resume. 
• No matter how bearish or wounded you might feel from the past two sessions, respect the convergence of moving average support at “X” marks the spot. Again, allow for some responsive, rotational trading today if the market simply pauses.
• Global wildcards continue to loom and could interrupt the best-laid plans. Use stops.
• Everything converges with Fed Chairman Powell’s Friday speech following the conclusion of the annual Jackson Hole conference.

 As always, stay tuned.

A.F. Thornton