Archives June 2021

Founder's Trading Journal

Epilogue 6/21/2021

AF Thornton 0 Comment
S&P 500 Cash Index (SPX) - 5-Minute Candles

The trade I set up this morning is illustrated in the chart above. We had two long, day trade entries on the S&P 500 this morning. The first manifested on a cross of the 5-minute Navigator Algo trigger. The second came using the 30-minute breakout range setup I described pre-market. The market has not done much since the sell signal on the cross back below the Navigator Algo trigger on the chart above.

What confirmed these longs were the strong internals today – almost the reverse of Friday. There were 4 gainers for every loser on the NYSE and nearly 2 for one on the NASDAQ. NYSE tick distribution was positive all morning, as was the S&P 500 A/D line, which pegged at about 462 positive out of the 500 members. All of this supported a positive intraday trend day for day traders – carrying to our second target circa the 4200 area.

On the negative side, volume dropped over 40% from Friday’s down day. Admittedly, Friday’s volume was boosted by options expiration, but the drop in volume today is notable.

We would expect resistance exactly where the market rests at this writing if the downtrend has cemented itself. In that regard, I suggested this is a good position to begin shorting if you are a bear (and I am at the moment). We need a definitive close above the daily 21-EMA to argue for new high prices and an end to the pullback/correction. Today’s move back above the 50-day line does cause some bear indigestion, but nobody said this would be easy.

The sharp recovery could also indicate that Friday’s move was a one-off aberration. Recall I said that strange things happen on quadruple witching. It would be a cruel joke if that is the case and the market rocks on. As set forth in “View from the Top” this morning, we have been in a rotational correction since late April, it is not inconceivable that it ended Friday, but the probability is that there is more to go along the lines of the synchronous downdraft we experienced late last week.

As always, stay tuned and I remain open to all possibilities. I will provide a more extensive update as you sleep blissfully tonight. That is the advantage of being half a day ahead of the U.S. on this side of the world.

A.F. Thornton

However

Navigator™ Signals for Day Traders

Mid-Day Outlook – 6/21/2021

AF Thornton 0 Comment

If you followed the morning plan, today was textbook of the 30-min breakout range I described. Strong internals, strong breakout, but to me it is a shorting opportunity as I believe that the trend is now down.

If you are in the bearish camp, as I am, this is where you can start to short the market. You can buy at the money puts, as I will. I am starting here. I am starting with the S&P 500, but you could get more bang for the buck from the NASDAQ 100. If either index goes higher, you can do more but start conservatively. Your stop is a new closing high in either index. You can go out to the July 16th monthly expirations or beyond. July 20th would be a perfect candidate for the 18-month cycle trough – but calling it to the day is nearly impossible – but it is in the zone. 

After the first down leg (which I believe ended Friday), you can expect the market to retrace most of it before it rolls over again. Call premiums are still high if you want to sell calls, but consider a vertical spread so you have some protection. I am not a fan of selling a naked call.

As in life there are no guarantees. When you buy a put, your risk is what you paid for it. As always, remember I can be wrong and certainly have been wrong at times. You have to make your own decisions.

Start slow.

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook – 6/21/2021

AF Thornton 0 Comment

Neighborhood Watch Chart

24-Hr S&P 500 Index Futures - 2-Hour Candles

Let’s start with the 2-hour candle chart above. I have been using a 2-hour chart as my master chart for day trading lately. I will change that from time to time, but it is working well for now. In this chart, I define the neighborhood where the market will hang out this week. You know what they say. You need to know your neighborhood, and trading is no different.

What is nice is that the neighborhood (highlighted in gray above) is defined by the Weekly Expected Move. There is a 70% probability of staying within the Weekly Expected Move range each week. In fact, multiple billions are betting that price will stay inside this range. Also, each week, there is a high probability that the price will tag one end of the range. Once you have established the week’s direction, the corresponding end of the move is your ultimate target.

I will always do my best to help you prioritize the support and resistance you will encounter each day. In so doing, I look at the market from two perspectives. First, we have the traditional chart perspective as outlined in the normal price chart above. Second, we will look at the market/volume profile perspective, which measures volume and time at a price.

In creating your chart, then, start by calculating the Weekly Expected Move and drawing it in. Then, using monthly, weekly and daily charts, draw in any major support or resistance that you will encounter in the range. I usually market these on the right with an “M,” “W,” or “D.” Also, look for important moving averages you may encounter in the week’s range from the monthly, weekly, and daily charts.

Normally, you will contend merely with the 5-day line from the daily chart. In a larger correction (such as the one unfolding now), you may encounter the daily 21, daily 50, and weekly 21.

I draw or program all of this into my 2-hour chart. As stated above, I like my 2-hour chart to at least be readable. Even if it appears cluttered at first, I can step down to a 5 or 15-minute trading chart which will be uncluttered but have all the relevant lines I need to day trade.

Also, recall from our discussion last week, you always want to paint yesterday’s high and low and the overnight high and low (if you are trading the futures chart). Initially, traders will move the market towards these key levels to test strength or weakness for direction. You can pivot at one of these levels or breakthrough it as the case may be. Breaks can be fake-outs – so monitoring for acceptance and continuation at the new levels is important. Often, you are applying one or more of the setup rules I point out pre-market.

Today’s Plan – Micro Narrative

This morning, the market will open with overnight inventory balanced and prices in the upper 1/3 of Friday’s range. Having said that, overnight range expanded Friday’s range lower overnight, so carry that forward today as well. About half of the overnight trading is above and half below Friday’s settlement. In such cases, nothing tips us as to the market’s initial direction. Accordingly, I will mark the top and bottom of the first 30-minutes and take a trade in the direction of the first breakout, but only after the market pulls back from the initial breakout. I look for a price pivot on the pullback. A good target, assuming nothing else is in the way, is double the range. This is not easy and can be tricky at times. The market can change direction several times before it settles down. Usually, by 10:30 am EST, there is a 70% probability that the high or low of the day has been established.

Overnight we have somewhat of a “V” bottom. That leaves the potential for a reversal pattern to go higher. All of Friday’s identified “support” levels will now act as resistance if the market attempts to go higher. If the market can take out the overnight high at 4177.50, I would target the former breakdown low around 4185.50, all the way up to the 21-day and downtrend line from the top, which both congregate around 4200. Be cognizant, though, that the market could not punch through the 50-day line on Friday, which is about the same level as the overnight high at 4177.50. That level could act as a magnet or center line to prices today, but that is a wild guess.

On the downside, target Friday’s settlement at 4151.25, also the overnight halfback. Then focus on the overnight low at 4126.75.

As stated before, the default direction of the market every day is sideways or rangebound once a range is established. Market internals can help you determine this. Mixed internals usually mean rangebound or what we call “responsive” trading. You buy and/or short when you get to the end of the daily range and pivot. The safest trade is to get out at the middle of the range. That is where running a daily Volume Weighted Average Price (VWAP) line can be helpful. It gives you the middle in rangebound conditions. You can run standard deviation bands on the indicator to help identify the range boundaries.

I have highlighted the WEM range in the gray box above. So if you see the gray highlight in a 5-minute chart later today, you will know what it is. As a side note, the safest calculation for the WEM is the hand calculation on the SPX Cash Index. The cash index is also the best place to calculate your support and resistance. There is a lot of premium in the new September futures contract – so the cash index levels will not correspond well to the futures. It turns out that the SPX cash index actually did pound against the expected move on Friday, before the index rolled over. I missed that occurrence in the cash index because I was not allowing for the extra premium in the new futures contract.

I will publish a quick primer on determining a price turn with some precision later this week. It is unwise to put on trades simply because you are at support or resistance. There is a method to confirm a turn. Once you know it, you can watch the price to determine its probability of pivoting before you commit to the move. And as stated before, some support and resistance are more important than others. Usually, that will be where multiple support and resistance zones congregate.

Last week’s decline from the Fed meeting is impulsive and has exceeded the typical, symmetrical a-b-c wave. The “c” portion of the wave extended, increasing the probability that the market’s top is in. The market ended Friday very oversold on the intraday charts, so a bounce this morning is not surprising. However, the S&P 500 index is not yet oversold on the daily charts, so caution is warranted for longs.

Good luck today. I don’t trade Mondays typically, as I often state. Weird behavior often follows weekends, as it follows a Friday of quadruple witching expiration.

My fingers are tired from typing anyway this morning. The next update will come out about Noon EST. Have a great trading day.

A.F. Thornton

Founder's Trading Journal

View from the Top – 6/21/2021

AF Thornton 0 Comment
24-Hour S&P 500 Index Futres - Daily Candles

Introduction

As always, please permit me to remind you that most analysts (including myself) enjoy pontificating on everything that has occurred on the left side of the charts. The only thing we enjoy more than that is bragging about our good decisions while minimizing any discussion of our bad calls. I do my best not to be one of the latter-described analysts. When I am right, I am right, and when I am wrong, I am wrong, period.

When I am wrong, as all of us should, I figure out what I missed and try not to repeat mistakes. I share those lessons with you as openly as possible. Sometimes, being wrong is not anybody’s “fault,” but simply the consequence of a random, unanticipated event that intervenes. We need to be ready for that too, which is why stops and sound money-management principles are important. In the end, I am always humbled by the fact that there is an even chance of being right or wrong on any call about the direction of the market. So, I can never be sure if I was correct or just plain lucky. That tends to keep both of my feet planted firmly on the ground.

So, please recognize that the discussions on these pages make trading look easier than it really is in real-time. We don’t drive our cars using our rear-view mirror, nor do we trade similarly. We deal with the right side of our charts, not the left side. If you haven’t noticed, the right side is a blank canvas.

We use probabilities and not certainties to make our decisions. Thus, we must always remember that the behavior of price itself as it unfolds in front of us is the best indicator of the future. And we must always keep an open mind to possibilities outside the most likely outcome, staying flexible at all times.

Macro Narrative

We have been in the final stages of the latest intermediate leg of the bull market that began in 2009. This latest run began at the bottom of the China Virus low in March 2020. The March 2020 low was a nest of all nominal cycles of 54 months or less, so it was a very important trough and juncture. At that time and using quantitative analysis, we predicted that the nominal 18-month cycle in the broad market (S&P 500 index) would likely peak around May 8, 2021.

The computer does not distinguish between trading and non-trading days. May 8th was a Saturday, and the S&P 500 put in an all-time high of 4238.25 on Monday, May 10th. While the index slightly bested that high last week, it immediately rolled over into what I now believe to be the more obvious manifestation of the 18-month cycle intermediate correction. In reality, the correction started with Consumer Cyclicals (XLC) and Utilities (XLU) in late April.

There have been many signs that the intermediate trend was waning. We had the formal, Navigator sell signal on the S&P 500 on May 10th, with a second sell signal on the failed rally attempt on June 16th. There were momentum, strength and breadth divergences throughout May and June. Offense/defense ratios failed to confirm the marginal new high. Some risk-on and risk off measures had been weakening. Sentiment had grown complacent, even in the very short-term sell-offs. I have pointed these factors out as they unfolded.

The correction has slowly swept into the 11 Sectors of the S&P 500 Index. The earliest sector to roll over was Consumer Cyclicals (XLY) on 4/19. Utilities were next on 4/21. Industrials (XLI) and Basic Materials (XLB) peaked along with the broad market on 5/10. Health-Care (XLV) peaked on 5/21. Financials (XLF) peaked on 6/3. Consumer Staples (XLP) peaked on 6/4. Real Estate and Energy peaked on 6/10. Communications (XLC) peaked on 6/15, and Technology (XLK) peaked on 6/17, but neither the XLK or XLC has definitively rolled over as yet, remaining above or still in the vicinity of their 21-day means.

In the Founders Group, we had been trying to reconcile the market price action, bond rally, and early rollover of the reflation sectors such as Basic Materials (XLB) and Industrials (XLI) to potential inflation pressures. How does the behavior of these sectors make sense if inflation is out of the box and out of control? I would harken back to my 2021 forecast. I expected inflation to heat up and it did. 

On the one hand, I think the rally in bonds, decline in reflation sectors, and rally in the dollar reflects defensive posturing in the financial markets, just like we confirmed in the SKEW and other indicators last week. However, with the Consumer Cyclical (XLY) sector being the first to peak in late April, one cannot exclude the possibility that the economy (and inflation) are peaking.

The heavy sovereign and corporate debt burden across the U.S., Europe and Japan stifles economic growth. And while the Fed has injected a lot of liquidity into the banking system, that is not the same as “printing money.” The Fed action is only the first stage. The actual creation of money comes when the banks make loans. That is step two in the velocity chain, and it is not happening.

Monthly Chart - Total Loan to Deposit Ratio - Commercial Banks

We have to observe all of the sectors as the correction unfolds. Ultimately, fund flows off the bottom will tell us a lot about future inflation expectations.

Intermediate corrections along the lines of the nominal 18-month cycle can go on for several months and can take the S&P 500 index all the way to its 200-day line. Keep in mind that we are already a month into this correction, as we look in 20/20 hindsight.

The 200-day line sits at 3800 today, slightly more than a 10% correction from the top. The size of such a decline would be quite reasonable in the circumstances. The index won’t likely go straight there but usually zigzags down. Also, the 200-day line will continue to rise as the index works its way down or sideways, depending on the scenario. 

The ideal low should occur in early August, but there is quite a bit of variance in which the low might occur in a nominal 18-month decline.  It is best to let the correction unfold and use our usual measures, including the algorithm, to find the bottom.

Now, is it possible that the correction has yet to start, and we are simply experiencing some higher volatility while the NASDAQ 100 pulls the rest of the market higher? Yes, it is possible, but that is a minimal probability forecast.

Should we expect a crash, as some have forecast since the beginning of the year? Again, that is not the most probable outcome, but we don’t have to know that answer. You should either be in cash at this stage or consider shorting rallies. Obviously, shorting rallies is a strategy for more sophisticated investors. But there is no reason to get caught in a crash if you are in cash and patient.

I would also acknowledge that the divergence in the performance between the NASDAQ 100 and S&P 500 right now is very unusual, to say the least. Some would see an opportunity to short the NASDAQ 100, as it may catch up to the correction rather than pull the market higher. At the moment, I will choose to look at the indices independently. We have nine of the 11 S&P 500 sectors in full-blown correction mode. Tech and Communications are influential, making up a third of the index weight. Also, they have been consolidating since last fall. I won’t exclude the possibility that the two sectors will buck the trend. But I would not (and will not) bet on it.

Stay tuned…

A.F. Thornton

Founder's Trading Journal

Epilogue – 6/18/2021

AF Thornton 0 Comment

Well, now you get to see the outlier. The market (S&P 500) broke to the upside of the falling wedge at about 11:00 am EST and staged a rally but only back to the 50-day EMA line on the daily chart. The market makers tried to push the market through the line unsuccessfully for the rest of the day to attempt to recapture the WEM low at 4188-89.

We came into the last hour around the 50-day line at 4175 and there was still hope to climb the 14 points back to the WEM low. Still, when it was clear about 10-minutes before the close that the market makers were not going to have their way, the S&P 500 dropped 25 points in 10-minutes. 

That was the waterfall I mentioned in my first writing today when market makers all run for the exits at the same time to neutralize their deltas. The only saving line was the half roundie at 4150 – a typical 50-point increment inflection point – at least good for a bounce.

There is no way to sugar coat this – the close was ugly. We closed well below every major intermediate support identified this morning. I find it difficult to argue that the intermediate trend is intact. It appears to have been obliterated in less than three sessions past the Fed announcement.

There will be many stocks to short from here, nearly as systematically as we bought them in the past year. That is my best guess anyway after spending the day in church without my phone or any other monitoring capabilities.

More on Sunday – perhaps even a video.

Stay tuned – glad we are in cash.

A.F. Thornton

Navigator™ Signals for Day Traders Navigator™ Signals for Swing Traders

Pre-Market 6/18/2021

AF Thornton 0 Comment

As indicated yesterday, I am not trading today, nor would I with quadruple witching (monthly and quarterly options and futures expiration). There will be no commentary today as it is an important religious holiday here in Greece. Since just about everyone on this island is either a relative by blood or marriage to my wonderful wife, appearances are important.

The Navigator Swing Strategy remains 100% cash as it has been for the past week or so. As to day trading today, as previously set forth in these pages weird things can happen on quadruple witching days. As a perfect example, we see now (at 8:33 EST – the time of this writing) the S&P 500 making another pass at the WEM low –  putting in a brand new (post-Fed Meeting) low at 4173.50. I hand calculate the WEM low to be 4188 – while the computer calculation is 4189. The point is that many people will lose money today if the S&P 500 futures close below the WEM low level.

I was forbidden from sneaking another trade to or from the WEM low here, but I will sneak in a few comments. In this area, between say 4165 and 4188, we have the important rising intermediate trendline at 4193, the Fed Day reversal low at 4183, the 50-day EMA at 4176, and the 6/3 pivot low at 4165. That is a lot of support.

But for today only – I would key in on the 4188-89 WEM options expiration low. There is nothing else to probabilistically cradle the market below 4188-89 after expiration this afternoon. The WEM low will act as a magnet.

While the Weekly Expected Move low holds the market 80% of the time, on the occasions when it doesn’t, especially on an expiration Friday, we could experience a waterfall decline of sorts as market makers rush to neutralize their losses by selling S&P 500 futures contracts. That would be the exception to the rule. 

Otherwise, I would expect the market to move back to the 4188-89 level or higher before expiration at the close today – from wherever the market decides to pivot higher after this latest or any further sell-offs later today.

You don’t blindly buy the WEM low. You buy the pivot from the ultimate low or lows the market achieves today (maybe using a 15-minute chart as your primary analysis for the turn). So in one scenario, you may be buying close to the WEM low and continuing higher above it, with a successful retest of the Fed Day low around 4183 in place. Also, however, you could be riding a buy trade from a much lower level back up to the WEM low at 4188-89 by the close. Do you see how this works? Treat the WEM low as a magnet as long as the S&P 500 is trading below it.

Beyond that, the market needs to close above the rising, intermediate trendline currently around 4193 to keep the intermediate trend alive. The S&P 500’s negative divergence (meaning the broad market is not confirming the new high in the NASDAQ 100 by a long shot) is concerning. 

But for the NASDAQ 100 firing its last shot higher yesterday, I would be betting that the intermediate trend is finally rolling over. I will have more to say over the weekend, as I am not 100% confident in the analysis yet, but rolling over is my leaning.

Trading much below the 6/3 low today, which sits at 4165.25, could trigger the outlier, waterfall decline from which the market will not recover back to the WEM low. Admittedly, this is something we rarely experience. For now, traders could be running the stops under the Fed Day reversal low at 4183 – only to load up inventory to bring the market right back to the 4188-89 level to take profits late in the day. Right now, the market looks to be forming a falling wedge pattern to reverse higher on the 24-Hour futures data.

With yesterday’s settlement all the way back up at 4212, we would be dealing with a gap this morning (and perhaps a true gap if we open below yesterday’s low at 4183). If so, GAP rules would apply.

Also, keep in mind that we would be opening outside our recent balance area, which has the southern boundary at 4205, with the 5-day EMA just above there at 4209 and the 21-day EMA just below at 4204.

Summarizing then, a close below the 5-day EMA (4209), 21-day EMA (4204), 50-day EMA (4176) and the intermediate trendline itself (4192) nips the intermediate trend. It definitively shifts our strategy from buying dips to shorting rallies for swing trades. Day trades have to be considered day by day.

Best of luck if you decide to trade today, and enjoy your weekend.

A.F. Thornton

Founder's Trading Journal

Epilogue – 6/18/2021

AF Thornton 0 Comment

I closed out another nice trade on the S&P 500 E-mini Futures about 15 minutes before the close – the trade I had mentioned mid-day that once again keyed off the Weekly Expected Move low at 4189. Combined with the middle of the night trades, and I am trading conservatively, 

I captured significant sums today working that same S&P 500 WEM low, sprinkled with a few NASDAQ 100 contracts that I clearly sold too early this morning. Anyway, today was a good day-trading day for me. And go figure, I squeezed out some good gains in what can only be described as a bit of a strange and bifurcated market.

Yesterday, a potential leadership change manifested when the financials turned around after the Fed announcement and press conference. But investors were having none of that today, with more rotation from cyclicals and financials back to tech and other growth stocks. Typically, the day after is a better harbinger of the future than the day of the Fed decision.

Maybe the rotation does make sense, as the NASDAQ 100 had been in a consolidation since last August. The time flies, and cyclical/value names have had plenty of fun in the sun. That is why I need the weekend to take a look at all of this from 30,000 feet. This is the second time in a month that I underestimated the NASDAQ 100. Apparently I was in good company today – but it still ****** me off.

I am not trading tomorrow, nor will there be any outlooks or commentary. First, it is unwise to trade on quadruple witching expiration. Also, Friday is a religious holiday here in Greece and everybody will be in church. When I say everybody – I mean everybody. 

I am told that they will all gossip if I don’t attend – and that is not good in these small villages as gossip is the main industry already. There is a quaint Greek Orthodox church on nearly every corner. They are as prolific as Walgreens at home. 

The beauty of these churches is something to behold. I really enjoy them, and they are quite similar to my Catholic upbringing – at least if I understood Greek. I didn’t understand Latin either. You might recall that the Catholic church split off from what became the Greek Orthodox church in the Great Schism. 

Speaking of a great schism, that is a good description for the NASDAQ 100 (NDX, NQU1, or QQQ) today. The NASDAQ 100 headed north in what almost amounted to a solo climb, while the S&P 500 (SPX, ESU1, or SPY) and nearly everything else headed south. By the day’s end, the S&P 500 and a few of the sectors had improved, at least climbing a small hill and closing near the highs of the day.

The broad market, then, looks like it is already in a correction and waiting for the NASDAQ 100 and growth stocks to join. The NASDAQ 100 is throwing a lifeline out to the rest of the crowd to pull them up. I am not sure who will win. For now and with my bad knee, I will grab a beer and watch from the ski lodge.

I look forward to figuring all of this out and wish you a happy weekend (early).

A.F. Thornton

Founder's Trading Journal

Mid-Day Update – 6/17/2021

AF Thornton 0 Comment

Bizzare – that is my primary thought here. Let’s start with 10-year US Treasury yields paring back under 1.5%. Clearly, that favors growth and tech. Next, the NASDAQ 100 screamed out of the open straight up to tag a new all-time high before stalling. Next, the S&P 500 went straight to nowhere – stalling right at the overnight high. Financials (XLF), Basic Materials (XLB), and Energy (XLE) are getting clobbered – all down north of -3%. Energy is approaching -5%.

The S&P 500 ran into the supply mentioned this morning. NYSE breadth is nearly 3:1 negative. NYSE Tick distribution has been negative all day. The broad NASDAQ breadth is even.

Honestly, I don’t know what to make of this at all. Is the QQQ and/or NASDAQ 100 a solo artist? A one-hit wonder soon to join the living dead? Or, will it pull everything else back up with it? I would favor the former over the latter. But at this point, I don’t know. I am wondering if any of this has to do with quadruple witching tomorrow? Maybe that is where the term “witching” comes from. Is it another full moon?

I woke up at 4:30 am here, and that is when both indexes were retesting their lows overnight in the futures market. Trading rehab never worked for me. Naturally, I took a dive toward my keyboard. I picked up two contracts on each of the NASDAQ 100 and S&P 500 futures (counting once again on the WEM lows holding through Friday). I woke up to blissful profits, but sold at the 15-minute / 21 EMAs on the cash indexes about an hour after the open. I could not have imagined the NASDAQ 100 would keep going.

All I will say for now is that I would keep my powder dry until the picture is a bit clearer. The divergence here between tech and the rest of the market is not healthy. I need the weekend to figure all this out. I have seen some weird markets and weird times, but this dystopian drama we have all been experiencing seems to get stranger and stranger.

I just picked up two S&P 500 minis off the 4189 WEM low for a trade. Hang in there with me until we can ready, fire, aim again.

A.F. Thornton

Founder's Trading Journal

Pre-Market Outlook 6/18/2021

AF Thornton 0 Comment

Focus on these three levels this morning – 4213 (the overnight high), 4196.50 (the low of our recent four day balance area) and 4183 (the overnight low which also clusters with the WEM low of 4189 and the 21-day line at 2199. All of these numbers relate to the 24-Hour S&P 500 Index futures but you can run similar lines on the SPY or SPX cash index.

The FOMC can change the market’s tone, and sometimes that is exactly what they intend. But we got the usual word salad yesterday, and the initial reaction to the announcement was mixed. Prices initially recovered 100% of what they lost, but then pulled back into the close. Then when it came to Globex, we found the markets not only revisiting the lows but putting in marginal new lows, before recovering slightly into the NYSE open here in a few minutes. Today will give us the true clues to our near-term future.

It is important to note that the intermediate trend has not yet been violated. While the day was rocky and the range was wide, it can only be viewed as negative in the context of the narrow ranges of late. Compared to the usual correction, the price action has not been particularly negative as yet.

While overnight inventory is 100% net short, we are still trading within yesterday’s range so the early trade is a “maybe.”  We are close to the overnight halfback – so maybe the overnight traders took their profits already and that further skews the early trade.

The key takeaway from yesterday, which held the 21- day EMA on both the S&P 500 and NASDAQ 100, is that prices found acceptance below the low of the recent four-day balance, and overnight activity went further below that. Early trade could be governed by persistent overhead supply from that balance (especially the marginal new high longs I discussed yesterday). All of these participants may want to liquidate – but weak hands are out of the way for now with yesterday’s temporary plunge.

Mark the overnight high as weak as it went right to settlement and reversed. Should we see strength, assume moving up and through this level as a potential buy and then monitor for continuation.

Overnight activity tested the TPO VPOC from June 3rd. This would be the target with any further weakness. Below than, let’s talk again Monday as you should be shorting or in cash.

A.F. Thornton

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