Un-Trumping Amerika and a Secondary Entry Point

Navigator Algorithms – 100% Invested

Bottom Line

As the new administration rolls the Trump Agenda backwards, one of the first attacks is on fossil fuels – oil in particular. On his first day in office, Biden canceled the Keystone Pipeline and began a war on fracking and US energy independence. Look for energy prices to skyrocket in the coming months. Besides the nearly 200,000 job losses associated with the rollbacks, prices at the pump are likely to rise significantly.

The rising energy prices will also lead to rising utility prices. All of this will serve as “hidden taxes” on the middle and lower middle class who spend a disproportionate amount of their income on these expenses. This dark cloud over the economy is likely to lead to stagflation similar to what we experienced in the 1970’s.

Short-term, the overnight futures market sank, perhaps providing us with a secondary entry point today or Monday. Stay alert today for a follow-through signal for those who missed Wednesday’s buy – or a sell signal if we run the stop on our existing position.

Navigator Core Algorithms

ETH Daily ES

The daily trend is up but riding our stop line around the 3818 level. As expected the Weekly Expected Move High at 3849 backstopped the market yesterday. This will either serve as a secondary entry point, or we may run our stop today. Stay alert to further notification.

The key issue today is whether price will find acceptance back in the previous six-day balance range between 3750 and 3800. Likely, however, this is a retest of the breakout into the new range above 3800.

Narrative

Dominant market themes include a vaccination supported, broader-based economic recovery now supported by the new stimulus package. We remain in the strong seasonal strength period for stocks which occurs from October through April. Tech profits continue to be rotated into prior, underperforming sectors. Fed policy remains favorable, although Congress recently took some of the punchbowl away from the Fed in terms of main street lending. Considerable uncertainty surrounds the economic impact of early decisions by the new administration.

Investor sentiment remains the biggest concern – particularly a retail option investor bubble. Excessive optimism abounds as manifested in record margin debt, confidence surveys, options speculation, stocks vs. GDP and record IPO issuance. The frothy sentiment exposes weaker hands, keeping the index vulnerable to almost daily liquidation breaks.

Stops are more critical than normal in this environment. Make sure all your trend lines are up to date with the liquidation breaks.

Volume Profiles

Key Economic Reports

PMI flash reports, existing home sales, crude oil inventories, and oil rig counts are all due today.

Morning Plan

As set forth above, the risk this morning is that current prices are ticking back within the 3750 to 3800 balance area from last week. We will open with a solid, true gap lower on the heels of a poor high in yesterday’s distribution. Poor highs typically lead to backing away first and then should be carried forward for repair. In essence, longs with poor location got stuck yesterday and are backing away.

Overnight inventory is about 90% net short, and we are currently trading in the lower third of the overnight range. A large unfilled gap is still in play just below the overnight low, with the top of the gap at 3811.25 and the bottom at 3797. Expect the gap to provide support until it doesn’t. Continuing to hold above the gap without entering it is the most bullish outcome and would support a new entry point and continuation trade. Some acceptance within it or a full fill would be less so and would potentially change the current tone a bit, perhaps running our current stop.

The overnight selling is old business, taking care of the poor location longs trapped near the poor high. Our early focus is on whether or not they are done or not. Failing to take out the overnight low early would tell us that they are done, and new business can commence, which “should” be new money buyers coming in.

Given the inventory position and knowing what we know about the sellers’ nature in the overnight session, there remains a potential for an early fade. We need to pick our spots wisely using either the first one minute high or across back up through the open as the key to reversal after any initial drive lower.

If the overnight low holds or the fade is only slightly into the old full gap fill, target the overnight halfback first at 3831. Should the gap get breached and we have very bearish internals and faster tempo, this would tell us that newer sellers are coming into the market and we should target the gap bottom at 3797.

A.F. Thornton

Un-Trumping Amerika and a Secondary Entry Point