Navigator™ Swing Strategy – 25% SPY and 25% DIA Calls – Add on Dips to the 5-Day Line / Navigator™ Day Trading Strategy – Bias is Long – Key Levels Below.
One of my mentors used to say that trading was a lot like magic. There is a lot of sleight of hand and misdirection. In other words, it is easy to get distracted by the “thing” when the real issue is less apparent. Yesterday reminded me of his wise counsel.
While everyone was focused on the Fed announcement, the Democrats quietly shelved the Build Back Better bill until next year. We all know that in an election year, especially with the polls as horrific as we find them now, the Democrats will be focused on getting reelected. So the bill is likely dead on arrival – forever.
I would humbly suggest that the market rallied on the failure of Build Back Better – not the Fed announcement. The market celebrated $5 trillion less in debt and deficit spending, less inflation pressure, no tax hikes, no 80,000 new IRS agents, less Socialism, etc. So did the market actually rally because the Fed decided to get more aggressive? Or did the market celebrate the death of Build Back Bankrupt? You decide.
Celebrate it did, and the market is slated to follow through on Santa Claus’s rally this morning with a gap open and new all-time highs for the S&P 500 Index. The NASDAQ 100 is next in line, followed by the Dow. The Russell 2000 is tagging along with the medics for now – but it is rising nonetheless.
By the way, I love how the pundits are characterizing the Fed action as “aggressive.” Let me get this straight – they are slowing their liquidity pump. But they are still pumping. And they will do so until March. No rate hikes until after that. It looks like the punch bowl is still there to me. All I see is that the Fed warned the Wall Street crowd so they have plenty of time to exit the markets next year. Also, the Fed gave the market what it asked for – no more and no less. So, “Party on, Ted.” “Excellent!”
And what about the Fed’s latest round of absurd projections? Looking at their last couple of dot plots, I wonder which governor predicted a 4.75% Fed Funds rate for 2020. Another had predicted 4%. Can you say “Bankruptcy” for the Federal Government?
In yesterday’s dot plot, five FOMC participants actually believe that the Fed will hike all the way from 2.75% to 3.25% by 2024. What is the annual interest on $30 trillion at 3%? How about triple what it is now. We don’t even collect enough income taxes to pay that interest, much less anything else in the budget.
I seriously doubt that the Fed hikes at all in 2022, and we certainly will not see six hikes by the end of 2023. If so, we will likely be speaking Mandarin by then in the wake of our economic collapse.
Speaking of Mandarin, with China’s Real Estate Market imploding and slower growth, as well as other draconian reactions to the latest Omicron variant, the global economy is already showing signs of slowing. Eurodollar futures are inverted – an ominous prediction for the global economy. Interest rates are more likely to take care of themselves in the circumstances. And that assumes the fix is not in on inflation anyway.
Swing Traders
I know you had to be quick yesterday, but we went to a 40% position in each of the Dow and S&P 500 indexes at the Weekly Expected Move lows. The indices turned higher after Chairman Powell started speaking. They never looked back.
Because the market is almost vertical, I will cut those positions back to 25% each at the open today. From there, I plan to keep the Swing Trading strategy at 25% invested in SPY and DIA January monthly calls as long as we stay above the five-day line or we reach the top of the trading channel around 4800.
Conservative swing traders can add to positions on any visit to the five-day line. And while I will be out for the holidays next week, I will advise if anything changes – exactly what I had wanted to avoid after last Monday. I wanted unencumbered time off, but the temptation was too sweet yesterday.
Day Traders
I am writing this at about 4:30 am PST, and the S&P 500 Futures are only a few ticks from the all-time high. There are no references when we hit blue sky above the breakout.
If the market achieves new highs above 4740.50, monitor for continuation. Use 4700 as your line in the sand to maintain the break-out status. Buy dips to the 15-minute and hourly 21-period mean if the market remains brisk – and sell at the standard deviation bands.
The market will be short-term overbought soon, so be careful. Remember that tomorrow is Quadruple Witching expiration, which could distort trading even today as market makers position for expiration. I am not trading tomorrow, and there will be no Pre_Market Outlook.
One last cautionary note – we still need the soldiers on board for this rally, or we will have lots of cautionary divergences forming on this run. But as I said yesterday, from a pure chartist perspective, the bull market is very much intact on the S&P 500 and NASDAQ 100 indices.
A.F. Thornton