Intermediate Trend Status
Last week, Captain Kirk (William Shatner) of Star Trek fame had his first actual space and weightlessness experience at age 90. He said the weightlessness experience was indescribably awesome, but he felt his “age” when the G-Forces hit him as he left Earth’s atmosphere. And this reminded me of the rally off the 80-day cycle low and “Cradle Trade” last Wednesday. Let’s call this the “G-Force Rally.” If you were short, the skin likely was blown off your face. Of course, you weren’t short because you tuned in to these pages.
The Founder’s Group continues to hold its 10% S&P 500 Futures position but is looking to switch back into 25% SPY calls at the appropriate time. We want to sell the futures high and buy the SPY calls when the index drops slightly. Who wouldn’t? We will see how it goes.
Is the rally sustainable? Are new highs possible? Are they probable? The short answer is yes. For now, this looks like the seasonal September/October dip, which happened on the 80-day cycle trough for this particular year.
As to the intermediate picture, I still favor the trading range hypothesis. The next G-Force downside comes on the next cycle trough for the 20-week loop, which is due late in the year. I will hone in on the date as we get closer to the cycle peak. For now, realize that this larger cycle, most likely peaking in November, may influence a trading range, with headwinds for significant new highs. As mentioned before, the 60-week bull channel that preceded the latest dip typically resolves with a trading range. But has anything about this Fed-induced blow-off been typical?
Notably, the July 19th low remained below the recent pivot. This leaves open the possibility that the 18-month cycle dip did anchor in July. That would be bullish. But it does not explain why the NASDAQ 100 went to new lows on this dip.
I think it best to work the smaller cycles and keep an open mind to a more considerable decline as if the 18-month correction is still ahead. That is the more foolproof way to handle the issue.
Longer cycles are always problematic to nail because of the principle of variation. If the window for the bottom can vary by 3%, that can be a month or more on each side of the projected trough, giving us a three-month window. Three months is mainly useless to target and trade a potential low in the markets.
A Quick Comment on Inflation
The inflation of the 1970s, especially in housing prices, had a lot to do with the Baby Boomers coming of age and starting to buy their first homes. The Millennials are now in a similar position. Millennials are a bigger group.
There is such a blame game in this country, and I don’t hear anyone talking about this. Letting in 2 million or more illegals this year, whether you agree with the policy or not, also puts a lot of demand on everything from housing, cars, and food. Are politics and blame so important that nobody is talking about these demographic issues? Stay tuned.
Is the inflation transitory or here to stay? Look no further than the Washington Post this weekend for your answer. One of the lead articles is “Inflation Can Be a Good Thing.” The Washington Post to the current administration is like the Global Times is to the Chinese CCP. When the Post’s narrative shifts to “inflation is good,” when of course, it isn’t, you know inflation is not going away soon. Higher interest rates are likely to follow.
Speaking of the Chinese CCP and Global Times, did you catch the Chinese test of their new, “undetectable,” low orbit, hypersonic missile last week? Do you think we are going to challenge their storming and taking over Taiwan? Do you think the timing of the missile test is a coincidence? Stay alert.
Neil Howe On The Fourth Turning: How Bad Will It Get, How Long Will It Last & What Comes Next?
There is nothing like hearing from the author of The Fourth Turning, Neil Howe, himself. He has not given a public interview in a while. His co-author died a decade ago, and I wonder if either Mr. Howe or Mr. Strauss could have imagined how accurate their forecast would be when they co-wrote “Generations” in 1993 and the follow-up “The Fourth Turning” in 1997. Here is the interview link to Part I. You will find Part II here. The discussion is a bit complicated, to be sure. But it is worth your time.
In his latest interview, Mr. Howes had a few salient comments on our current predicament. First, he says that few people remain of the generation that knew how to handle a crisis. Doesn’t that just hit the nail on the head? Those left of the “Greatest Generation” are in their 90s or older.
He made another observation that could explain a few things we are experiencing as well. He said that liberal democracy is a delicate system that relies on progress. The Millennials may be the first generation in our country’s history that is not doing better than their parents. Spoiled rotten for sure, but democracy “regressing” may very well be a danger to its survival. If it isn’t working for Millennials due to the gross and rampant corruption in Washington D.C. and the wealth gap that results, is it surprising that Millennials are unhappy with the system?
And this goes back to my experience with a lot of things in life. There is always a lot of finger-pointing in politics and plenty of blame to go around. Presidents can make things a bit better or worse at the margins, at least as far as economics go. But most take the helm with much more significant and uncontrollable forces that were set in motion long before they got there. There is a bit of luck involved as to when they arrive and leave.
But as I predicted, the narrative is shifting once again as the market recovers from its gargantuan (tongue-in-cheek) 6% September/October correction. The supply disruption “end-of-the-world” narrative is shifting to “look at all the great demand.” I always get a chuckle out of all of this.
Millennials coming of age; millions of illegals crossing the border; don’t all of these people have to live somewhere, eat, and buy toilet paper as mentioned above? Could the explanation for demand and supply imbalance inflation be that simple? In a word, yes.
I don’t mean to let the current administration off the hook for their insane energy or immigration policies. And their vaccination mandate will go down in history as one of the biggest and most insidious blunders ever imposed on a society. But sometimes, it pays to cut through the noise and look for more straightforward explanations.
Today’s Day Trading Plan
Our Globex cousins tested the top and bottom of Friday’s range and got nowhere. So the market will open inside Friday’s range and is likely to balance a bit after the considerable run-up from Wednesday’s low. Look for responsive trading today. Use a VWAP and Volume Profile to establish a center, top, and bottom range.
Friday’s low at 4455 is also the top of Friday’s gap, and Globex traders could not invade the hole by much last night. We know that gaps eventually fill, but the longer it takes, the more bullish the market is.
If we drop below 4455 and it becomes resistance, target the bottom of the gap at 4431.25. Otherwise, look for responsive trading around the VWAP today. Watch tone and tempo. How the market handles Friday’s gap will give us a lot of good macro information for the intermediate picture. And there is another gap further down, but let’s leave that for another discussion, should it become necessary.
Conclusions
Nothing has changed in the big picture. This era will, eventually, meet its maker. Too much-unearned wealth in undisciplined hands. Too much debt. Pick your poison. Humpty Dumpty sat on a wall…
Have a great day.
A.F. Thornton