Navigator Algorithms – 100% Cash
Last Thursday, I introduced you to one of the best indicators around – WWSHD. When What Should Happen Doesn’t. On Weekends, I look at Friday’s S&P 500 candle, as well as the candle for the prior week. If those candles close in the upper third of the range, I expect some follow-through action in the same direction the following day, week, etc.. If the candle closes in the bottom third, I expect movement in a downward direction the next day, week, etc. If the close is in the middle of the candle – then my expectation stays neutral. There are other, important nuances better discussed in a video or class, but hopefully, you get the picture.
Last week, we were making a slow turn off some major support in the market consisting of the 21 and 50-day lines, the weekly expected move (“WEM”) low, and the previous week’s low all congregating around the roundie at S&P 500 3400. The weekly wandle and Friday’s candle all pointed to higher prices today and this week. Yet, the futures gapped down Sunday night in Globex, and promise to open this morning in decidedly negative territory.
Additionally, we are sitting at levels already tested last week and, by good arguments, levels we should not be revisiting this morning. The market will open below the 21-day line and already tested the uptrend line overnight. Think of it like that common retort we all make to our friends and family sometimes. Been There, Done That (“BTDT”). In the market, BTDT is not the retort we are looking for on what should be a follow-through day.
We also identified the slow turn off the important levels we reached last week as a slight change in market behavior. During the first phase of the China Virus rally that ended in August, the market would spend barely a nanosecond at the 21-day lines before bouncing off the level like a Super Ball (I put a link to define a Super Ball in case I am dating myself). Also, the turn stalled at the downtrend line connecting the candle tops from the latest peak on October 13, and from that level, the S&P 500 futures have been falling all night.
So, right out of the gate this morning the market is doing the opposite of what was expected. Globex trading occurs on light volume and is not always the end-all in predicting the next day. But the overnight price action is a contradiction not to be ignored. If the market drops below last week’s low, the only thing that will save it is the Expected Move Low down around 3387. The market makers will defend that price with their lives. Much below that price, even the market makers will bail and start selling futures to neutralize their portfolio deltas.
The Navigator Core S&P 500 index models are still 100% cash – not yet generating a buy signal. I am thankful for that this morning. I will drop a status report out to everyone mid-day.