Archives 2021

You might wait for at least an hour after the Fed announcement before making your move – unless you are a gambler or you execute a specific option strategy.

Having said that, I rarely trade the last hour as the professionals are usually balancing their day-end cross trades on mutual and related fund deposits and redemptions. In other words, the final hour action tends to have cross currents unrelated to market strategy and market direction.

Tomorrow would be a better day-trading session for me, perhaps the last session for the week. Friday is quadruple witching day – meaning monthly and quarterly options and futures expire. Quadruple witching is not a wise day to trade unless you have a specific strategy aimed at the particulars of the day, such as an option pinning strategy.

If I were to trade today, the 5-day EMA would be my bull/bear bias line, and my absolute line in the sand would be a close below yesterday’s low around 4228 for anything beyond a day trade. I start getting excited at any range expansion and acceptance above 4249.25. In a melt-up after the Fed Meeting – target the all-time high at 4258. In a melt-down, target the Gap area down to the WEM Low. Always remember the S&P 500’s fondness for fighting in 50 point increments along the vertical scale.

If positive range expansion finally takes hold, and we find acceptance above the recent balance range, there arguably is some more upside room in the wedge or the pattern could be negated (as half of most patterns are).

In that case, we would need to consider a swing trade, as the market could double the May low to yesterday’s high move – some 200 points higher from here. That would complete a large, two-step – a-b-c correction. The current pattern portends otherwise, but I will put it on the table for your consideration. Even short of that, the Fibonacci projection from the May seed wave is 4293.51, which is right below the Weekly Expected Move high at 4306. Carry all of this forward in your narrative.

Since we have no great insights to trade from Globex or the last few sessions, assume more balance until the Fed comments are released at 2 pm EST. Responsive trade is the rule when the balance range is solidified. Watch internals. Mixed internals underpin responsive trade. Solid internals in either direction tend to lead to trend trading off the 5 or 15-minute 21-period EMA.

Truly, I don’t know how to call today. The waning strength and breadth of the rally is concerning. The cyclically sensitive sectors (including the Dow itself) rolling below their 21-day lines also warns of trouble brewing. The stock market / treasury ratio has yet to confirm recent new highs – possibly indicating defensive posturing.

Yet, it has been a difficult market to fight if you are a bear. The price seemingly climbs relentlessly. Growth stocks have reasserted leadership – a positive. And why would rates be falling of late if the economy and inflation are expanding out of control? Has gridlock in Congress tempered economic enthusiasm and inflation fears – especially as it relates to infrastructure spending?

Experience tells me that doubts should be resolved in favor of the current trend, which is bullish. But I have so many doubts! Regardless of the volatility this afternoon, keep your head on and don’t take unnecessary risks. You don’t have to trade today. There is always another train leaving the station. Your job is to make sure you have enough money left to take the next train.

Good luck today.

A.F. Thornton