Archives 2021

Navigator™ Signals for Day Traders

Epilogue – 4/8/2021

AF Thornton 0 Comment

The slop fest chop continued through to the close, not an ideal scenario for day traders, right? Well, that depends. Let’s review where we started this morning.

After large gaps at the open such as this morning, Gap Rules caution us that such large gaps often fail to fill on the first day and can be difficult to trade as the markets digest the overnight gains. Moreover, I cautioned that one way to assess the likelihood of a Gap and Go scenario versus chop and digestion is to assess market internals at the open. Today, market internals opened both weak and mixed, almost ensuring sideways price action – otherwise known as balance. The NASDAQ 100, which I will use as my example, gave us a classic, balanced day.

When I write about expectations for balance – this is what balance looks like. When I discuss “responsive” trading, I am referring to trading from either end of the balance range. In other words, traders “respond” to the edge of the range, not hesitating to take long and short positions throughout the day.

Today, you got to observe the potential for responsive trading in a balanced session firsthand. Your assessment skills in early trading can be critical to the outcome. Today, I dropped $300 on my first few trades before making the correct assessment and righting the ship. It goes with the territory.

Knowing you are trading a balanced or trading range session, what can you do if you feel the need to trade? Personally, I prefer to skip these days once assessed – but there are a couple of other choices. 

Looking at the NASDAQ 100 from the market/volume profile angle – you have the classic bell curve. Note that the volume histogram (number of contracts traded) dries up as the price rises or falls. Today, 13733 is where the most volume occurred and the most time was spent, making it the fairest price of the day. Traders were unwilling to expand the range in either direction. 

That is how the auction process unfolded today, and the chart below gives you the proper visual reference. Traders explored both directions but landed in the middle.

Once you see the bell curve forming and you have established the initial range on the minute chart, you fade either end of the range/profile back to the middle. In other words, you trade the range. You can use the value area high and low to initiate long and short trades, as the case may be. Today, the value area (rectangles drawn on the profiles above) was not that wide, but it can be extensive in other sessions. 

You can draw a rectangle around the traditional price chart range and trade it from that perspective, perhaps riding from the range top to the bottom. However, top to middle and bottom to the middle is the safest, most conservative trading strategy. 

Always pay attention to key turn-times throughout the day, as a rally/decline to break the range could start at such times. Monitor for improving internals to assess the likelihood of a break. Make sure you look at a heat map of the S&P 100 to see if the large-cap leaders can overcome a negative advance/decline line. Also, note the yellow line on the traditional chart above. That is the volume-weighted average price, also a key level to cover trades initiated from either end of the range. 

One final way you can trade such days (once the volatility calms down an hour after the open) is to drop down to a 1-min or 2-min chart, then use the Algorithm Trigger for entries and exits, perhaps trading more contracts since the range is limited. Any combination of these methods can filter and take the best trades.

By the way, never underestimate the value of observation. At the end of each day, study a 5-minute chart for the day. Where were the turns? What time? What did the turns look like? What were the internals doing at the time? Before long, you incorporate the information into your brain, and the moves become intuitive.

The range today where 70% of the volume occurred essentially tilted upward from 13700 to 13750. Recall that the market progresses up and down, stalling and fighting at these 50 point increment levels. Always carry that forward. Step back and look at where you are and where the market is trying to go – when the market is encountering support and resistance. The information can be helpful to your confidence.

Perhaps the most important Market Generated Information to add to our bullish narrative today is that the markets held above their gaps, and traders accepted prices there. This helps bury the options market makers before tomorrow’s expiration and could force them to buy more futures as any hope of maintaining price within the Weekly Expected Move range may be dashed.

On the negative side, the volume was light again today, and there are some strange Intermarket relationships I will discuss tomorrow. Also, all the unfilled gaps below us will act as air pockets in an intermediate decline. That is when you need your parachute if you were not lucky enough to timely exit your positions.

Notably, today, gold is in a volatility squeeze, coming off an “h” reversal pattern. I am keeping a close eye on it. A countertrend trade up the channel can be very profitable off a volatility squeeze.

You can see what the squeeze has done for the NASDAQ 100 and S&P 500 over the past week, and perhaps Gold will follow suit. Gold can be a crazy character at times, but it is still worth throwing the line in the water. In the swing strategy, we increased our position in Gold today to 10%. 

Still, we sold the remainder of our equity positions at the open today, anticipating a small cycle pullback into early next week and cognizant of the nominal 18-month cycle looming over us. That cycle could last another month before it peaks, or it could peak next week. We don’t know but carry it forward in the narrative.

Finally, I am a bit perplexed by Oil and Energy (XLF) failing to lift off with the rest of the risk assets recently. With Gold rising, Oil stalling, and a lousy employment report today, my WWSHD (When What Should Happen Doesn’t) needle is spinning.

A.F. Thornton

Navigator™ Signals for Day Traders

Morning Outlook – Update

AF Thornton 0 Comment

This morning, we discussed that the S&P 500 and NASDAQ 100 indexes would open with a true gap higher, one of many gaps we have seen over the last couple of weeks. You can review the definition of gaps and gap rules here. Gap Rule #4 is particularly applicable to the NASDAQ 100 index today. The NASDAQ opened with nearly a 100-point gap. Bullishly, the gap barely filled, and the index has been able to sustain itself above the gap after two tests. Nevertheless, the index has gone nowhere so far today, essentially digesting the overnight move.

If you click on the chart above to enlarge it, you will see that I simplified the chart, and only the Navigator Algorithm trigger line is visible. Even with the trigger line to guide you, look at each price bars’ range – double or more from yesterday. The pace was fast as well this morning. Cleary, the index currently has no direction as it “digests” the overnight move per Gap Rule #4. Moreover, market internals have been weak today, further suggesting choppy conditions. For example, the S&P 500 advance/decline line has been evenly split all day, with half the stocks advancing and half declining. Unless you trade a 1-minute chart with quick, shallow trades, you will have your head handed to you in a fast market such as we experienced this morning. Never trade chop!

Now, compare the chart from today with the chart from yesterday immediately above. Note the smaller, more orderly, and tradable bars. The only chop was mid-day during New York lunch, which is normal and why I never trade it. Last night, I demonstrated how I made $4,500 yesterday trading one E-mini Nasdaq 100 futures contract in the more favorable conditions. 

Sometimes, you may initiate a trade or two before you realize you are in chop. Don’t sweat it – drop back and don’t fight it. Sometimes, you may get a nice afternoon drive that is smoother, even when the day starts with the chop. Here, it is not easy to forecast the afternoon drive’s direction as yet.

However, knowing the gap rules would have had you considering chop as a distinct possibility this morning. That gives you a nice edge over other traders. Moreover, you know that a short-term cycle should be peaking soon from yesterday’s cycle report. Also, you know that a major, intermediate top of the Nominal 18-Month cycle looms large. Finally, you are aware that the options market makers will fight like hell to push prices back below the Weekly Expected Move high before tomorrow’s weekly options expiration, or they will lose a fortune.

You may not have noticed, but volume has been rather pathetic of late. In lighter volume conditions, do you really want to contend with all the aforementioned headwinds? That is why the Founders Group used the emotion at the open to reduce our exposure further, leaving us with a 10% position in gold only. All of those wide bars and the fast pace this morning indicate a lot of emotional volatility. In my mind, this reflects the emotion of the moment and traders who are unsure as to how much longer they can sustain this rally. 

The volatility can also be an early warning of a peak. At the very least, the wide, back and forth swings tell you that confidence in the direction of the next move is waning. We carry all of this information forward as market-generated information to add to our narrative. 

Why push your luck on the long side today? Perhaps it would be better to step aside here, wait for a pullback on the minor cycle, and/or begin to hunt for a short position. I am not ready quite yet, but I am eyeing the out-of-the-money puts – to get my toe in the water for the 18-month cycle peak.

It is the timing and quality of your trades that count, not the quantity.

A.F. Thornton

Navigator™ Signals for Day Traders

Morning Outlook – 4/8/2021

AF Thornton 0 Comment

Good Morning:

Gap rules are in play this morning, and the following comments apply to both the NASDAQ 100 and S&P 500 indexes. Due to the true gaps breaking out of recent range, there will be some shock and awe at the open, which opens up the potential to trade sooner rather than later. Market makers could pile on to buying futures, believing that the indexes will close above tomorrow’s expected move highs. Current prices have come off from the overnight high but that might also put a damper on an early fade. 

Regardless, target the top of the recent ranges as the first line of support. We need to monitor for acceptance and continuation above these levels. in this crazy, bullish environment, I would expect any move to the balance area range high to be a buy.

Should we find acceptance back within balance, there will be potential to move to the opposing end of balance as per gap rules. Only a move below the balance area low has the potential to change the tone. I see the odds of this as low, but the smart play always prepares for every outcome.

Any gap and go scenario should be characterized by powerful internals, a failure to fill the gap, a partial gap, or a swift rejection after a recent highs test. Monitor for continuation and keep gap rules #2 and #4 in mind.

The market is overbought and should peak at least a minor cycle in the next 24-hours, if not today. Keep that in mind. There might also be some profit-taking as overnight inventory is net long – but some of that has already occurred pre-market. Yours truly will be the first at the door at the open with QQQ options to sell.

Review yesterday’s epilogue for some tips, watch internals (ticks and the a/d stats) for confirmation if we are to trend higher. The NASDAQ 100 may try to test its all-time highs today.

Have a great trading day. After initial decisions – I am off for the day to celebrate my 62nd birthday, having defied death once again this past year!

A.F. Thornton

Founder's Trading Journal

Bi-Monthly Cycles Report – 4/7/2020

AF Thornton 0 Comment

This is our new cycles report which will be updated on the 7th and 21st of each month, absent significant events or changes. Today, we will concentrate on the S&P 500 index, but eventually I  will expand the report into some other asset classes including oil, gold, treasuries, and the U.S. Dollar. For now, the S&P 500 cycles will apply to most financial market indexes and sector funds, including the NASDAQ 100, by proxy.

Short-term, we have the nominal 40-day cycle trough due Monday, give or take a day. So today we are in the zone for a short-term peak before a few days of profit-taking.

Longer-term, and of greatest concern to the short-term picture, the nominal 18-month cycle could peak any time, as we are past the mid-point. This is typically the most challenging cycle we deal with on our trading horizon – leading to the deepest corrections as all other cycles less than the nominal 18-month will bottom simultaneously. The last cycle bottom was March 2020 China-Virus low and had been averaging about 16 calendar months trough to trough over the past five or six cycles.

While the market had readopted its bullish stance, this is likely to be the last rally leg before the 18-month cycle peaks. If the market will fall apart and crash, as many have predicted, it is most likely to occur on this cycle peak. While I would reasonably expect a 10% to 15% correction, I am not expecting a “crash” at this time. Of course, my crystal ball is not any better than anyone else’s.

A.F. Thornton

Navigator™ Signals for Swing Traders

Be on Alert for More Sells in the Morning

AF Thornton 0 Comment

The overseas markets broke out of this week’s range tonight, carrying the NASDAQ 100 and S&P 500 Futures a good distance above the Weekly Expected Move highs. 

If New York opens at these levels or higher, market makers may have to scramble and buy even more futures to neutralize their deltas before Friday’s expiration. I want to sell our remaining S&P 500, NASDAQ 100 futures, and XLF option swing positions into that strength. 

As I have discussed this past week, Blowing through the expected moves is a rare event, and I want to take advantage. So far, this is happening in Globex, which is not the most reliable indication if not confirmed in regular session trading. 

Nevertheless, if this breakout follows through in the regular session tomorrow, I would attribute it to the power of a volatility squeeze firing long as we are witnessing in the NASDAQ 100 index.

I may also want to add to our gold (GLD) position and expect to see our energy position (XLE) pick up, or it will be disposed of summarily, as it is the only drag on the portfolio in this latest run. 

Stay tuned.

A.F. Thornton

Navigator™ Signals for Day Traders

Epilogue 4/7/2021

AF Thornton 0 Comment

Today (Wednesday – 4/7/2021) turned out to be outstanding for day trading, allowing two-way trading – both long and short. I traded one Nasdaq 100 mini contract for 228 points or just a little over $4,500. Of course, I could have traded more contracts, and I prefer to trade at least two contracts at a time. That way, I can get risk out of the overall trade as soon as possible by selling the first contract for a profit and moving the stop up on the second one to guarantee break-even on the overall transaction. But today, I wanted to keep it simple so that I could demonstrate the trades to you. Also, I could have traded a NASDAQ 100 Micro Contract and lopped off a zero for a $450 day and 10% of the risk. Always keep the micros in mind.

Beginning with our macro-narrative, the market has been extremely bullish, reinforced today by not even flirting with any price action below the single prints or gap mentioned this morning. I have detailed the narrative in yesterday’s epilogue (4/6/2021) and touched on it again this morning.

In this morning’s outlook (4/7/2021), we came into the market expecting balance and rotation, with any gains likely capped at the Weekly Expected Move highs, and we were not disappointed in the least. I also cautioned not to take a trade right at the open (as the initial drive direction was not clear from the overnight profiles) and that turned out to be wise as the market gapped down, before starting a raging rally higher.

While the print is small, if you enlarge the chart below you will see the trades. Basically, I never trade over the New York lunch hour or the last half hour of the day – both shaded in gray. I will close trades that are already open during those times, but I don’t initiate new trades. Today is a perfect example as to why, as you will see the “kill-zone” or chop in the first shaded area representing the New York lunch hour. 

Other than that, all I did was initiate long trades on the Navigator Algo Trigger (candles turn blue), then closed them at the Weekly Expected Move high or the first orange candle (negative Algo Trigger stop). Twice, I shorted at the first orange candle at or near the Weekly Expected Move high, then covered when the candles stopped one-time-framing lower. Simple.

Most sideways price action does not have quite as much range as we saw today, and sometimes you have to tune down to a 2-minute or 1-minute chart to pick up trades. Today was a bit of an exception to have enough range to get decent two-way day trades out of a 5-minute chart – but there you go. We will be doing this live once a week in the new trading room beginning a week from tomorrow.

I cannot always get into this much detail in these writings. Yet, I hope you can see how our ongoing macro narrative, together with our morning outlook and identified key levels from the previous day and overnight session, can set you up for a lot of confidence in your day trading. 

You can also see the Weekly Expected Move high power, which has stunted further progress in the S&P 500 since Monday and the NASDAQ 100 since yesterday. Having said that, the NASDAQ 100 and S&P 500 have both blown through the levels in Asia so far tonight. 

Though rare, the market makers could be forced to buy futures to cover their bets before Friday expiration – driving the markets considerably higher still. That is the exception, not the rule, and the Europeans have not yet had their say. Also, there is still plenty of time for the market-makers to bring the prices back by Friday. So I move forward on the rule rather than the exception as the most probable outcome.

The market-generated information from today is that the market is accepting these higher prices, which remains bullish. The next piece of information will come if we break to the trading range’s upside this week, or below it as the case may be. Tonight, the Asians are breaking us to the upside, but traders and investors must confirm that in a day session as that is where the big volume resides.

A.F. Thornton

Navigator™ Signals for Day Traders

Morning Outlook – 4/7/2021

AF Thornton 0 Comment

Starting with a view of the daily chart of the S&P 500 index, we see a “Trend Reversal Imminent” label lighting up on the Navigator Algorithm panel, with an “E” signal on the chart itself – connoting trend exhaustion. We tagged the first dynamic channel line, indicating that a mean reversion is possible soon, though we could hug the top channel line for a while. When we add that we have the Weekly Expected Move high holding us back through Friday, longs need to be very cautious here in day trading. Remember, pigs get fat, and hogs get slaughtered – it has already been a good week. Why push the envelope? Liquidation breaks are possible as the market still needs to repair the single prints from Monday.

One could short the moves above the WEM through Friday and cover back at the line. If the WEM high and the dynamic channel were not in the way, one could argue simply that a bull flag is forming to get us through the end of the week. One dynamic I have seen in wildly bullish weeks is that the futures spike after options expire at the Friday New York close – since the futures trade for a while longer and are no longer constrained by the weekly option market makers. That could be interesting this Friday, if the market remains this bullish. Be sure to review the cycles report coming out later today for further guidance on upside targets.

Inventory from last night is mostly long, but we have a fat, squatty profile inside yesterday’s regular session range until a few minutes ago when we tested yesterday’s regular session low. This indicates balance, just as a similar profile did yesterday, but traders also consider prices fair here. If we open below yesterday’s regular session low, that would be slightly negative at the open, giving us a slight downside bias. Still, otherwise, there is little to be gleaned from overnight action to guide us in the opening drive. In the circumstances, it is usually best to trade later rather than earlier.

On the upside, we were left with a poor high in yesterday’s regular session. We already got a little backing away from it towards the close yesterday. Today will be about how much more we get and whether or not it can repair. Continue to carry forward this high as in need of repair. 

For the S&P 500, key levels will be the Globex low currently at 4057, which is the top of the first set of single prints; then 4046, which is the top of the next level of single prints; and then the 4/5 low at 4037 which is also the top of the 4/5 gap. Any of these levels could provide support on the way down – and it is fine to visit them briefly. But acceptance at or below these levels could change the current, positive tone. Bigger picture, remember that the S&P 500 likes to progress in 50 point increments and stall – so 4050 and 4000 are key levels to watch. Any bounce off the 4050ish level back up into yesterday’s range should be considered bullish.

I would trade the NASDAQ 100 by analogy to the S&P 500 index and levels.

Keeping in mind that overnight action often dictates tone for the regular session, do not be surprised if we see more range-bound chop today. Wednesdays have a history of being choppy days anyway. I use the NYSE ticks, NYSE, NASDAQ and S&P 500 advance/decline lines, and advance/decline volume to help guide me as to trend. You typically need at least +250 or -250 advancers or decliners in the S&P 500 to trend in the applicable direction. Anything close to even indicates chop. The monsters of tech can distort the picture – so make sure you take a look at a heat map of the S&P 100 to determine what is driving the index.

Best wishes for a fabulous day trading day!

A.F. Thornton

Navigator™ Signals for Day Traders

Epilogue 4/6/2021

AF Thornton 0 Comment

Today was a picture-perfect demonstration of our morning expectations and projections. The market does not always please us with such predictable compliance. Before we get into that, I want to repeat and expand our ongoing, market-generated narrative – emphasizing the big picture from 30,000 feet.

Contextually, we continue to rise out of the gates of the 20-week cycle low (March 5th) and the retest of that low on the 20-day cycle loop (March 25th) – this remains bullish. Besides the positive fact that the lows came in almost to the day and on schedule, negative sentiment spiked on both days as measured by the CBOE Put/Call ratio and the CNN Fear/Greed index, furthering our confidence that both of these lows would hold. We had Navigator Algorithm and positive momentum buy signals on these lows in the indexes and many related “growth” sectors – another bullish sign. We were transitioning from March – which traditionally favors more defensive or “value” market sectors to April, typically the best month of the year for the stock market, “growth,” and technology. Clearly, we were bucking the market’s “value” style popularity, interest rate fears, and rising inflation narrative. It can be advantageous to fade these “ruling reasons” at important cycle turns.

On April 1st, we closed on the day’s highs for both the NASDAQ 100 and S&P 500 indexes and on top of the previous day’s spike – unbelievably bullish. On April 2nd, the market was closed for Good Friday, but overnight activity in Globex (the overseas markets were open) carried us much higher – bullish. Then yesterday, we had a Gap and Go with a strong close and no gap fill, leaving a long line of single prints and a long “P” formation (typically a positive trending continuation pattern), not to mention a virgin (untouched) point of control – mostly bullish. Many single prints indicate somewhat desperate, emotional buyers that were likely panicking to cover their short positions.

Perhaps the only negative was that yesterday’s structure was shaky with all of the single prints, and the overseas markets were closed, leading to light volume. But overnight activity in Globex last night was balancing in a small range, barely testing a portion of yesterday’s lower single prints – which was mostly bullish and showing acceptance of yesterday’s higher prices overseas. Moreover, we obliterated the latest market narrative that the NASDAQ 100 was linked to interest rates and inflation expectations.

The reality is that the Nasdaq 100 is waking up from a period of sleep – with most growth stocks consolidating since last August. Buyers are engaged with plenty of catalysts to support their activity. The structural implications also give us plenty to work with in terms of one of our favorite counter trades, “When What Should Happen Doesn’t.”

Note from the market and volume profiles below that the NASDAQ 100 rose a bit higher today as predicted, but the Weekly Expected Move high became the obstacle and is likely to contain the market for the rest of the week. The action today was otherwise a bullish follow-through, adding to the narrative.

Looking at the NASDAQ 100 on a traditional candlestick daily chart, note again how the Weekly Expected Move was the brick wall as predicted today. The last candle is the Globex activity so far tonight.

Also, as anticipated, the S&P 500 did not make as much progress today as the NASDAQ 100, as the S&P 500 was already tagging its Weekly Expected Move high yesterday. After trading above it for a while today, it tucked right back under before the close. It amazes me to this day how much Friday’s weekly options expiration level influences the indexes every week and how few traders even know about it.

Looking at the S&P 500 on a traditional candlestick daily chart, note again how the Weekly Expected Move high (red-dotted line) was the brick wall as predicted today and yesterday. As with the previous NASDAQ 100 chart, the last candle is the Globex activity so far tonight.

Today maintains the bullish narrative, but we are stuck at the Weekly Expected Move highs for both indexes, and likely until Friday. The NASDAQ may be tempted yet this week to try to tag its former all-time high, but it will be tough sledding fighting the market-makers above the its expected move high. 

So I expect more backing and filling this week before further progress is possible. The indices need to repair the single prints from yesterday, meaning we will likely go lower before we go higher next week. Even then, we are already at projected targets for both time and price based on several different measures. I am uncertain about how much more upside is possible, but this market continues to amaze me.

It would be best if you always carried a market-generated narrative to be successful in short-term trading. Notably, all of the narrative cited above is generated by the markets and indices themselves. That is why I call it MGI or Market Generated Information. It is not my opinion. As such, it is likely more accurate and objective, just like the Navigator Algorithms. I make it a point never to argue with the markets unless I am prepared to lose money – something I studiously avoid.

I will have more guidance for day trading in the morning.

A.F. Thornton

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