Archives 2021

We are overdue for a bounce, but it is safe to assume that sellers remain in control unless we take out the ONH at 4448.50. Use caution on early trades as the open is very close to the settlement and overnight inventory is very balanced. I usually prefer to wait for the market to settle in before I trade in the circumstances.

Any movement below the RTH Low should target the 50-day line at 4413. The 50-day line should offer strong support initially, even if we are starting a larger correction. Failure to do so would potentially be a longer-term bearish signal.

My best guess is that we find support on the 50-day line, flip back higher, then put in a second leg down into the 80-day cycle low in a week. The second leg could be a double bottom but is more likely than not to take us lower to put some fear into the bulls.

Don’t forget the blow-off scenario mentioned yesterday if we make a quick move to 4600.

A.F. Thornton

You can see from this morning’s bulletins that we are having fun with the website programming.

As the market has been one time framing lower now for six RTH sessions, there is a downtrend in place and that downtrend line marks your shift to a bullish case. The line is dynamic so mark it on your charts. I would use 4460 on the December contract as the line right now – but it changes as price moves.

Another good proxy for a bullish reversal is to look for the price to come up through the 21-EMA on the hourly chart and successfully retest the line to make sure it will hold.

On the bear side, the sellers are working to break 4434.50 which continues their rare moment in the sun.

Treasuries (as measured by the TLT) seem to be breaking up out of their symmetrical triangle – portending lower rates. So the pressure may be off the Fed as far as tapering, but the greater concern is why rates are falling. Is it a flight to quality? Is it evidence that the economy is slowing? Is it a combination of both?

Fear seems too elevated to bring us a huge selloff, so I am still of the mind that this is part of the 80-day cycle trough developing. The precise due date for the low is the 22nd.

The cycle lows rarely follow the calendar as closely as we do but this corrective phase should be ending within a day or two of that target. The next big wave down is the 20-week cycle due in late November. That is where it promises to get more interesting.

Stay tuned,

A.F. Thornton

One of the global events unfolding is the implosion of China’s private real estate market and an associated debt crisis. The Chinese government may be stepping in with a rescue and bailout package similar to the U.S. in 2008. What governments typically do to maintain power when their economy is teetering is to create a diversion. Combine this fuel with the Biden Administration’s surrender to the Taliban, and you have the worst of all worlds.

China (through the CCP’s Global Times) announced yesterday that they will now be exercising sovereignty over Taiwan’s airspace, a first. As you will read from the editorial, the CCP threatens an all-out war if Taiwan shoots down China’s fighter jets.

The West is heavily dependent on Taiwan for all kinds of computer chips. As there is already a chip shortage now, we can only imagine what a conflict over Taiwan would portend. And that is not the worst of it. Suppose the U.S. and Japan do not take a firm stand. Surrendering to China could shift the balance of world power. I have little confidence in our own leaders. Make no mistake; China owns many a US politician through bribery or blackmail, or both.

Weakness invites war, as it has many times in the past. Our exit from Afghanistan weakened our position in the world considerably. Wars typically accompany Fourth Turnings. So I am monitoring events carefully.

This news will not make the mainstream news right away, as most of our illustrious media don’t read the Global Times every day.

I will expand on this news later, as I am sending this bulletin from my phone.

Stay tuned,

A.F. Thornton

The bears sold off for 5 days, which is significant compared to other pullbacks since the pandemic low. The sell-off came earlier than in recent months on the cycle. We are in an 80-day cycle markdown, so it was slated to be a bit more serious.

Next week’s FOMC announcement will be important. That increases the chance of the market starting to go sideways.
We found support yesterday at the bottom of the bull channel, which is just a few points below Friday’s low.

September or October should be the high of the year and the start of 15 to 20% correction. There is a 40% chance it has already begun.

There have been many selloffs comparable to this one since the pandemic low. The bulls bought each one, and they will probably buy this one as well.

It has been strong enough so that the bulls will probably need a micro double bottom this week before they can get back to a new high.

We might get sharp acceleration up to above 4600 before a more serious correction begins, possibly after the September 22 FOMC meeting. If so, that would probably be a blow-off top.

Yesterday’s low is now the key line in the sand. Consumer inflation came in slightly below expectations this morning, but still high by recent standards.

We are watching developments in China vis a vis Taiwan closely.

A.F. Thornton

Steady selling all week in this first business week of the fall season, together with a close below the 21-day EMA on the S&P 500 index, is cause enough for the Founders Group to return to an all-cash position, exiting all of our calls in the XLF, XHB, XLE, IWM, and QQQ. While these positions are not violating their 21-day lines, we appear to be heading into the 80-day cycle low a bit early. We are getting little, if any, lift from the 20-day dip. These other sectors are likely to join the fray, and we don’t want to wait until the last minute. We will regroup over the weekend.

AF. Thornton.

There is not much change from yesterday. The market is trying to pivot from the 21-day EMA, similar to the past few months at about a similar point in time. As a side note, don’t forget to switch to the “Z” contract today.

If the 21 holds, the market likely will make an attempt at the old highs. If not, a larger correction is underway. In any event, it is all about the Fed and Fed policy. The liquidation break yesterday was driven by Fed comments, and even the European central banks are weighing in with rollbacks.

Sentiment remains negative enough that the market could hold the 21. But there also is a negative pell over the country given the Biden speech yesterday and what it portends in terms of authoritarian overreach. It is almost laughable now that the Democrats accused Trump of being a dictator. I think they call this “projection”

The problem is that in a time of supposed labor shortages, a lot of people could refuse jobs if they are required to take this experimental vaccine in order to work. We don’t yet know the potential impact of these mandates

Stay tuned and focus on the 21-day line today as your threshold.

A.F. Thornton

The market is following the same path as the past several months thus far. It shoots up from the 50-day line, stalls, and then dips into the 21-day line around the 10th trading day. If the path is to continue, then we shoot up again for a few trading days into a new high, before dipping into mid-month options expiration.

So the key references today are yesterday’s low at 4492 and settlement up around 4511 or so. Acceptance and/or a close above 4511 keeps the bull case alive. A close below 4492 changes the tone considerably.

Central bank chatter both here and across the bond continues to bubble up under the surface. But the economy appears to be slowing, which takes the pressure off tapering.

A.F. Thornton

I consider yesterday to be the first full business day after summer. Except for the Tech Monsters, there was quite a bit of broad-based but minor selling.

Concerning our market proxy, the S&P 500 futures, we tested the balance area low at 4410.75 yesterday and breached it overnight. But we are back into balance at this writing. So sellers did not pile in, at least overnight, giving us a WWSHD signal.

Also, when the balance area is breached and the price returns into the range, it frequently travels to the other end, which would be the all-time highs. Anyway, as this was also the down mode of the minor, 10-day cycle – nothing significant has been violated yet.

But, key levels have shifted focus to areas below the current price as any movement below yesterday’s low would be significant.  You have the overnight low at 4497, also in the realm of the roundie at 4500. The top of the single prints is at 4492. Balance Rules remain in play for the larger range (4410.75 to the all-time high). 

The concept “When What Should Happen Doesn’t” applies to today’s session.  Failure to find acceptance below 4410.75 keeps things status quo even with the overnight price exploration since we don’t “count” that towards structural repair or change.  

In the bigger picture, today puts us exactly two weeks from the next FOMC announcement.  The focus will start to shift towards that meeting gradually.  Thus far, sellers have been noticeably absent in this market, and there is no obvious catalyst that would attract them until the meeting.  Sector rotation continues to keep the overall market healthy.

A.F. Thornton

I am still not quite set up after a temporary cross country move, but should be fully operational later today.

Meanwhile, the market continues to climb the wall of worry. Again, I am watching both sentiment and momentum carefully. Breadth improved last week and is becoming less of a concern.

More concerning is a two-fold problem developing in China. First, they have been lying about their growth and GDP. No surprise there. I recall the old Soviet military parades. We now know that the missiles, etc. were fakes – fancy balloons.

But the Chinese commercial real estate market is teetering. Bonds of their largest real estate developer collapsed on Friday, halting the Shanghei exchange for a time. A lot of other Chinese bonds will suffer in sympathy.

These markets are like a pile of kindling. All it takes is a match to light the fire. We don’t know what the catalyst will be, but likely it will come from a quiet, unexpected corner of the world. So I am watching events carefully.

Meanwhile, stick to the balance range as your bull/bear guide. Closing above 4550 is bullish, below 4530 is bearish. The target remains 4600

More details to follow later today.

A.F. Thornton