Archives October 2021

I was encouraged when Thursday and Friday held above the recent gap higher, but Globex traders filled it last night. They brought the market almost all the way back this morning, and Globex trading does not count for the most part.

Today will be about whether the market needs to retest the overnight low at 4355.75 or whether we can stay above it, which keeps us in the gap range. I would prefer that we close above 4376.25 which is Friday’s low. Price exploration below 4355.75 opens the door to lower prices and keeps the downtrend intact.

Watch behavior around the open for early clues. Profit-taking for the overnight crowd should be close to complete on their short positions.

Otherwise, nothing has changed in the big picture. New lows would mean that the 18-month cycle is marking down and July 19th was not the completion of the cycle. The initial target would be the 200-day line down around 4180 or so. Continuing higher would bring us to the top of a new trading range likely short of or coincident with the recent all-time highs.

A.F. Thornton

The Founders Group just added another 5% to its swing position in 11/19 Expiration SPY 440 calls when the SPY itself was trading at 438.25. This brings our total position to 20%.

Our target is 445 on the SPY.

A.F. Thornton

The Founders Group just added another 5% to its swing position in 11/19 Expiration SPY 440 calls when the SPY itself was trading at 438.50. This brings our total position to 15%.

Recall that we have been in a Navigator Algo buy signal since yesterday morning. However, given the run-up that triggered it, we are trying to accumulate our position slowly on pullbacks.

Even though we have a buy signal, and we believe that the short-term downtrend has broken, we are not out of the woods yet. Our near-term objective remains 4460 on the futures and just under 445 on the SPY.

A.F. Thornton

Yesterday started out as a barn burner but ended a bit like a gap and crap, as we affectionately label such behavior. Traders partially (but nearly completely) filled the gap above us. But we still have yesterday’s gap higher below us, and we know all gaps like to be eventually filled.

Globex sellers explored the gap below us overnight at least down to 4382.25, then retested the level after the monthly payroll report this morning. In neither case were our Globex selling cousins able to get much footing. That puts a checkmark in the bullish column this morning. Opening above 4400 counts in the bullish column as well.

Today’s story will mostly be about whether we can stay in yesterday’s range above the gap and the ONL at 4382.25 or not. I am bullish above the ONL, less bullish below it, and running for the hills below yesterday’s gap bottom at 4355.75.

I don’t trade on Friday but will take a peek at the close to determine whether to hold our 10% position in SPY calls or add to it. I don’t see anything else to give us much of a clue about the open. It might be better to let the tape settle in before committing to anything.

A.F. Thornton

The Founder’s Group just took an official swing position in SPY calls at 439.88 at the time of execution. We bought 11/19 at the money 440 calls. We took a 10% position for now. Remember that the calls are leveraged instruments, and we are still a bit cautious here. For now, we will use a stop of 438.75.

A.F. Thornton

The market is finally taking a bit of a breather from the morning rip-your-face-off short-covering rally. It just shot up at the open and stalled as predicted. This is often the case with large gaps, followed by late afternoon profit-taking by the daytime crowd.

As to establishing a swing position, I will see how things look right before the close. We may test the top of the gap, also the 21-day line on the RTH data around 4388. That would be a good place to begin establishing a swing position if we get a nice pivot.

For now, I am treating the Navigator Algo signal as a buy signal but still looking to cautiously establish a swing position on pullbacks and at key levels. I am targeting 10% November monthly SPY at-the-money calls if the pivot materializes.

The Navigator Algorithm can give us the signal, but it cannot predict the run. We have to use our other work to help us with targets and determine whether this is merely a run-up to the top of the down-channel or a true trend reversal. The jury is still out on that score.

A.F. Thornton

Sometimes the overnight markets frustrate me (unless I am in Europe and can get one up on the U.S.). I feel a bit robbed by our Globex cousins this morning, but we are opening with a Navigator algorithm buy signal nonetheless if the market does not immediately reverse. It is usually best to give the market a few hours to confirm the signal when taking the cue before the close. With the large gap higher this morning, it may be difficult to find a good entry point today unless you are willing to ride some volatility in your position over the next few days before profits materialize.

The opening will be a true gap higher, launched from a successful retest of recent lows. Gap rules will apply. It is very positive that we are rising out of a cyclical inflection point in the midst of very negative sentiment and opening above the weekly and daily means. At the same time, we are slammed right up against the downtrend line, making this a tricky buy point, with an initial measured move target of 4460. That is only 50 points higher from here IF that will be the end of the rally.

In the recent past, the market has moved right to the target with short-covering and FOMO. It might still do that, but the character of the market has changed. For example, this is the first time the target has fallen short of the old highs in the past year. My expectation continues to be that this move will form the top of a trading range even if it tags the old high.

We will take a 50% position in the S&P 500 using dips on the hourly charts. In a large gap higher like this today, the market will typically stall in a tight trading range all day, so new positions may require patience to find our entry points, and I will keep you posted.

Initial targets should be the overnight high at 4397.75, then the bottom of the gap at 4406.25, and finally the top of the gap at 4425. As mentioned above, the measured move target is 4460, and then there are about 100 points from there to the old highs.

Stay tuned.

A.F. Thornton

S&P 500 Futures – ETH Data

The market (as measured by our S&P 500 index proxy) has been battling to hold the weekly mean and managed to close above it today. I like the current negative sentiment and its interplay with the projected 80-day cycle low. In other words, there is a good context for an intermediate low.

There will always be a negative correlation between confirmation of an intermediate low and our returns. The more confirmation we have that the low is in place, the further we will typically be from the low when we enter. The further we enter away from the low, the greater the risk of a reversal to retest the break higher when we enter. If we are wrong about the low, the further away we enter also exacerbates the loss to our stop. Always bear these issues in mind.

Today’s close leaves price in the familiar teetering position. It not only sits at the weekly mean, but the price also approximates the August monthly low and the highs of the last few trading sessions. So this location is resistant, and I will need to see some upside follow-through to issue a buy signal coincident with a green Navigator Algo arrow. Nevertheless, the price action is encouraging today as was the strong close.

Keep in mind; I am not predicting or expecting the market to move up to new highs. A trading range is the most likely outcome from the break of the 60-week bull microchannel. At the very least, a move up to the top of the down trend line is possible. We will need to see the market eventually conquer that line as well, but first things first.

Risks abound, as they always do. China and a grab for Taiwan remain my biggest concern. But would they do that before they host the Winter Olympics in February? There is no way to quantify such black swan events except to keep your downside guarded should we issue a buy signal tomorrow.

Consider this your heads up, but we have come close to buy signals several times since we went to cash on September 10th. Though we came close, the signals never manifested completely.

Stay tuned,

A.F. Thornton

From the perspective of the 24-hour S&P 500 Futures contract, we are approaching our third inside day (if the overnight action is to be considered). This is a converging triangle type of consolidation. It also becomes a trading range framed by 4260 on the low end and 4365.75 above.

It also becomes apparent that the short-term momentum crowd is at the table, and the institutions are in more of a wait-and-see position.

The overnight session has erased yesterday’s gains and then some, trading just a few points below the RTH Low at this moment. The gap is true if we open out of range, and gap rules will be in play.

Coming back into range today (should it occur) will be interesting as there are 30 handles of single prints from the RTH Low to where value begins. Assume less resistance in this area of the distribution.

Overnight inventory is very close to 100% net short this morning which should also factor into your assessment of how the open will react. Although the gap is large, we are also quite far away from the ONL, which simply means that the imbalance at open is not nearly as great as it potentially could be were we trading closer to the ONL.

Work from the framework that any activity inside of the RTH range in early trade can bring on strong short covering. Monitor for continuation.

Holding below the RTH range is far less bullish, with the caveat that we remain within the multi-day trading range unless the 4260 swing low is taken out.

A.F. Thornton

Looking at the intermediate trend, the broad market (as measured by the S&P 500 Index) is still trying to find its footing at a double bottom around 4300. There are definitely buyers between 4250 and 4300, as we have seen for two sessions and overnight. But the trend remains down, and the Navigator Algorithms remain in cash, eluding several very close, potential buy signals. We continue to operate on the assumption that the market is in the process of establishing a trading range for the next several months.

For day traders, keep the intermediate trend in mind. While the S&P 500 held its recent lows yesterday, tech and the NASDAQ 100 put in new lows. Part of the decline was due to Facebook’s precipitous decline in the wake of what appears to be a CIA-type psyops game run against them. I am reminded about what China did to Jack Ma and Alibaba.

Our intelligence apparatus is likely trying to show Zuck who is really in charge. A whistleblower (attempting to enhance the left’s desired dissent censoring programs) combined with a mysterious global outage for all of Zuck’s apps is hardly coincidental. In the apparent leftist coup attempt underway in our country, Facebook needs to snap to it or face the consequences.

Zuck will learn that it is treacherous to deal with the devil. Just because you help the leftists take over does not mean they won’t eat you when your usefulness wains.

For day trading today, continue to focus on the swing low around 4260 as both the gateway to lower prices and a short-covering trigger. If sellers cannot move the market sustainably below 4260, the shorts will have to cover, and that may be all that traders will need to begin moving the markets back up the down channel for now. If we take out the overnight high at 4314.75 with some follow-through, the market can begin to repair yesterday’s single prints, and I become more bullish.

The situation between China and Taiwan bears monitoring. It remains both a wildcard and a hotspot. Your downside needs to be guarded and measurable if you are long. So many of our computer chips come from Taiwan that any conflict will devastate the financial markets.

The Navigator Algorithms remain in their cash position established on October 10th, and that remains our official swing trading position. I will, however, admit to personally nibbling in some of the downswings, but I don’t have much green to show for it quite yet.

A.F. Thornton