Founder's Trading Journal Rent a Rally? 11-14-2022 Nov 14, 2022 AF Thornton 0 Comment Mid-term Election Seasonality - U.S. Stock Market Good Morning:Futures are off slightly to 3985 after a quiet overnight session. 4000 remains the large resistance/pin area and is likely in play until 11/18 OPEX (monthly options expiration). Above that level for today, we note 4024 and 4040 resistance. Support shows at 3976 ad 3948.The “Pain Trade” is still higher. I have targets up to 4150.This rally seems different, and too many people think it will fall apart. The probabilities are that it won’t fall apart quite this soon. Note the comparison between the S&P 500 daily chart and the composite seasonality chart above. All the market has done so far is follow the typical pattern for a mid-term election cycle. The real bear may still lie ahead of us.For now, the market is a bit ahead of itself, so consolidation or even a slight dip into 11/18 OPEX (monthly expiration) is possible. I am putting together an extensive, post-election video that will come out late today.Meanwhile, we are in a Navigator Swing buy signal. We are “renting” the rally for now. We are riding the hourly charts for entries and exits.A.F. Thornton
Founder's Trading Journal Interim Update – 11/11/2022 Nov 11, 2022 AF Thornton 0 Comment Good Morning:I am still under the weather today, but I hope to be back in the saddle on Monday. We will feature Tom from Bookmap in the trading room today. Tom specializes in trading order flow and is a terrific teacher.Indeed, after one of the biggest short-covering rallies I can remember, the Navigator Algorithm gapped into a buy signal yesterday, which technically triggered at 3850 in Globex after the CPI report. A small Gap may also present this morning so that Gap Rules would be in play again. The Gap and Go rules served traders quite well yesterday.We came into yesterday’s session in cash, and there was no reasonable way to execute the Navigator Swing buy signal at 3850 in the regular session. Buying in Globex on a CPI report bounce wasn’t prudent either. We had to let the market play out a bit, and the first opportunity to buy on a pullback came mid-day around 3905.As I had suspected, more than 40% of yesterday’s short-covering came from the DTE crowd – so it was appropriately painful for them, and maybe a lesson learned.On a bullish note, however, investors finally began to add to higher call position strikes, moving the Call Wall up to 4000 and restoring our original target for the 20-week cycle peak to 4100.While yesterday’s behavior was a classic, rip-your-face-off short-covering rally, there was a character change similar to the March and June 20-week cycle lows, with investors adding materially to higher call positions.As a result, we are confident that there were some real investors yesterday. We will cautiously scale in on hourly chart dips for a swing while carefully monitoring the progress from here.Between now and OPEX (options expiration) on 11/18, we look for pinning between 4000 and 4100, along with lower volatility in a positive Gamma environment. The DTE crowd (a new phenomenon) could bring unforecasted volatility.Also, yesterday, the MOVE index (bond volatility similar to the VIX for equities) finally began to break, indicating that the bond market is getting more comfortable with the current yield forecast. The break in the MOVE index is another character change.As the MOVE index shows, bond yields also plummeted yesterday.One has to remain skeptical that there will be follow-through from the short-covering since the CPI report still reflected 7% inflation and barely beat expectations. In my view, the short-covering rally is more likely attributable to a clearer Republicrat victory yesterday, with the House and Senate majorities within reach. Wall Street loves gridlock, as we all should. We are all better off if our illustrious government stops “helping.”The traditional market path in a mid-term election year is bullish from here. But these are not typical times.Soon enough, the reality of the global situation will set in again.Meanwhile, there is a pattern in the market that could take the S&P 500 index back to the August high at 4350. And perhaps that trading range I keep talking about finally sets in from there.Meanwhile, the next major trough is the 18-month cycle low in early March 2023. Typically, the forecast low would be lower than September, landing in the 2500 to 3000 zone. Only time will tell.Today, the 4000 target level is possible. Above 4000, look for resistance at 4010 (SPY 400), then 4049. Support shows at 3958 and 3946.We see 4100 as the top end of the range going into the 11/18 expiration. Enjoy your weekend.A.F. Thornton
Founder's Trading Journal Interim Update – 11/10/2022 Nov 10, 2022 AF Thornton 0 Comment Good Morning:I am under the weather this morning, so I will cover the Trading Room tomorrow. Tom will cover the room beginning at 10:30 EST today.The CPI Report beat expectations this morning, so the short-covering has kicked in spectacularly, with the S&P 500 jumping 3% pre-market. Yesterday, I had estimated a 2.5% move in either direction based on option pricing – obviously a little light on the forecast.Gap Rules will be in order this morning, emphasizing #2 and #4.Today is not likely to be a great day-trading day, as distortions will abound in the indicators any time there is a move such as this in either direction.And the move may be nothing more than the DTE (one day to expiration) crowd running for the hills. Watching them suffer along with Bitcoin on the road to ruin is a pleasure.Every bull market cycle has its pretty lady, and she was Bitcoin for this one. There could be nothing more representative of pure Ponzi speculation save for U.S. Treasuries. And the 10-year treasury auction was awful yesterday. Nobody seems to want what the U.S. government is selling.But just like the election, onward we go for now.So, do we get our second leg up in the 20-week cycle or a complete reversal of these gains today? As I have repeatedly pointed out, the 20-week cycle usually runs for at least four weeks, even in a bear.When I look at the wacky way everything turns out these days, a complete reversal of the 3% gain would not surprise me in the least today. That is pure speculation on my part (and not science). It is just a feeling when we live in a world where up is down, and down is up.And fading this rally would be the brave thing to do – if one truly believes Armageddon awaits us in the third push down of the bear.And my embrace of an upside-down world is in no small part drawn from Tuesday’s election results where a very high percentage of voters seemingly approve of (i) skyrocketing energy prices, (ii) skyrocketing inflation, (iii) a rapidly deteriorating economy, (iv) suppression of free speech, (v) a disastrous withdrawal from Afghanistan, (vi) untested and mandatory shots that are killing people, (vii) open borders, (viii) a corrupt DOJ and FBI, (ix) a police state attacking parents, (x) grooming and sexualization of our children, (xi) World War III, and many more issues I have likely forgotten in these wee morning hours.I suspect Satan himself could be elected our next President, assuming he is not already in office.In past bears, the upward portion of the cycle at this point ran for eight weeks. This week counts four from the October 13th low.So let’s see how the day unfolds and whether traders and investors set a positive tone into weekly expiration next week (or not).Markets easily fool the unwary, just as elections do. But in the markets, everything starts with short-covering, though today is an extreme.Follow-through rules the day – and it may take a few days to confirm investor moods. For now, this is another day to cull your portfolio. Keep the winners and sell the losers.Imagine the money lost this morning by the meme crowd shorting the market for one-day. It is likely the same crowd eating their Bitcoin. That is why I prefer probabilities rather than gambling.We remain in cash. Even if the Algo issues a signal today, I will need more confirmation as the indicators will distort for a few days. If the picture is clear, we will let you know. The Founders Group covered our shorts yesterday for a nice profit from our last sell signal. We always prefer to be neutral going into any high-volatility events.A.F. Thornton
Founder's Trading Journal Interim Update – 11/8/2022 Nov 9, 2022 AF Thornton 0 Comment S&P 500 Index Continuous Futures - 5-Minute Algo Forecast and Results Good Morning:Futures are down at this writing but still inside yesterday’s wide trading range. Overnight inventory is net short.Key levels remain similar to yesterday, but there appears to be more of a tilt to long put positions added yesterday. Support comes in at 3800, then 3780. Resistance is at 3836 and 3851.The Bitcoin crash and liquidity crisis drove yesterday’s wild and extreme moves.We took full advantage in the Founders Room, and I hardly had a chance to get off the mic for a break.I felt like I was calling out a horse race.As Bitcoin was the culprit, I was pondering the suggestion that Crypto is the new gold.The proposition reminded me of the Red Wave expected in the election last night.Crypto is hardly the new gold, and the Red Tsunami now looks more like a ripple.And, by the way, gold finally looks as if it is ready to make its move higher.And, it is a good time to remind everyone that the Navigator Algorithms are either cash (a short signal for more aggressive investors).We will keep an open mind, as always. Yesterday was a key reversal day on the annual calendar. Since we rallied into the day, it is reasonable to expect a decline after.And there is nothing like the CPI report on the table tomorrow to give us a catalyst. Of course, we never know what the CPI report will do – but the options market is pricing in a 2.5% move.And whether the Orwellians maintained most of their power due to cheating last night or because they are better at elections, it does not matter.As a side note, we always marveled at the 9/11 low-tech terrorist operation. Yesterday’s Arizona elections sabotage appeared to be similar. When the Orwellians knew that most Patriots showed up on election day, what better way to suppress the vote than having 20% of the machines stop working in the reddest and most populated areas of Maricopa County in Phoenix?And, given that the Orwellian gubernatorial candidate was in charge of the elections – the rest is history.Nor would a Red Wave tsunami, now less than a ripple, have made any difference.And if you look at Florida and Ohio, where the States cleaned up their elections, and it is more difficult to cheat, you likely see a true barometer of where the country stands.The point is this; the die is cast, and the outlook for our nation and the global economy is ominous.The average person, and maybe even the above-average person, has no idea what is coming.You see, bad as things are, they will get much, much worse. Dystopian is the most polite word that comes to mind.You can already see the plugging of the proverbial dike. First, Credit Suisse. Whoops, another leak – Bitcoin. There will be another and another until the system finally blows.I hope I am wrong. I want to be wrong. But I also know I am right.As to the short-term, the Bitocin crash dashed the last gasp of bullish momentum yesterday morning.On a positive note, it was fun to take money from the “one-day wonder” Meme, DTE, and YOLO options crowd yesterday as they panicked to cover their shorts, giving us two trading extremes on the same day. We took full advantage.Tomorrow’s CPI report looms large – and it will likely be more of a wait-and-see chop day today.A 2.5% expected move is forecast for tomorrow. I will be in the Founders Room, and you should be too.A.F. Thornton
Founder's Trading Journal Interim Update – 11/8/2022 Nov 8, 2022 AF Thornton 0 Comment Good Morning:The day has finally arrived. Will we kick the bastards to the curb? Will it make a difference?And here is the greatest irony:But first, you must understand that the elite cabal wants to control the weather.After all, they look at themselves as gods. Some think the elites are already manipulating it.Add to that conspiracy, one strategy the Republicans are deploying is to all vote in person on election day. This way, the Democrats cannot override the election results with machine algorithms.So here I sit in California this morning, and we are having one of the worst rainy days we have experienced all year.It won’t be pleasant to vote in person in California today.Things that make you go, mmmm…Back to reality, the market will gap open today – so Gap Rules are in order.Our Volatility Trigger (3800) is sliding higher, indicating puts are being closed and calls added.While the current gamma region is somewhat flat, negative gamma kicks in below 3800 with significant, positive gamma building near 3900.Simply put (no pun intended), the market encounters higher volatility below 3800 and lower volatility as it approaches 3900.Today, there is a band of resistance above at 3834, 3842, and 3850. Support lies (no pun intended) at 3800, then 3760 (SPY 375).The election should release event volatility and support markets into Thursday’s CPI reading.Still, the VIX is consistently drifting lower to its current level of 24.5 despite the CPI volatility event looming.Without getting into the mechanics of making sausage, we associate the current VIX structure with regime change – e.g., from bear to bull markets.When this signal failed in the past, it was due to an unfriendly Fed – just like now. So I point this out to keep it in our narrative as we weigh all the evidence as we advance.I am in the trading room for a few hours this morning, where I will be featuring my new predictive Energy Algorithm. This new algo is still in beta testing, but we will monitor it today in real time.The algo predicts turns by analyzing the day’s low and high-energy magnetic field periods. We make this location specific, as we can switch between Chicago and New York, where the EMini futures contracts trade.Oh, did I forget? One last item from yesterday. The Commander of US STRATCOM recently said: “Ukraine is just a warm-up for what’s coming, and we need to prepare for the big one.”Happy Election Day – the election might offer a small modicum of hope in this insane period – or not…A.F. Thornton
Founder's Trading Journal Interim Update – 11/7/2022 Nov 7, 2022 AF Thornton 0 Comment Good Morning:Futures are higher this morning. But in my view, Friday’s key levels are largely unchanged.Support shows at 3780 (also the Volatility Trigger), then 3755 (SPY 375).Resistance lies at 3833 and 3850.We are positively retracing the most recent sell-off, with the possibility of another leg up in the nominal 20-week wave. As I have been counseling, it seemed too early to bury the market last week as the 20-week cycle typically doesn’t peak for a minimum of four weeks, even in a bear market. And eight to nine weeks is more typical.We are entering the fourth week today. And tomorrow could be a key turn date to watch based on our algorithms. So far, we are marking up into that date so that the turn would be in the opposite direction.The market loves gridlock – so even if Republicans only take the house, the market will be happy with this outcome. Still, likely this outcome is already reflected in the rally from October 13. If Republicans capture the Senate, the market could rally into the CPI report. Only after the passing of these events will we see if this second rally attempt has legs.Keep in mind that it still takes a formal pivot to trigger whenever we identify a turn date or alert window. So we don’t just take the date and run with it.And there is no guarantee that the bear continues – which would mean that the bottom is in. That is not my current thesis.The WEM high is 3864 this week, which would fall short of the most recent peak at 3925. The WEM levels have not been reliable recently, another victim of the meme option players and their DTE preferences.On an encouraging note, we may regain the 5-day line today, but the Algo Trigger also needs to be conquered at 3842 to count this as a decent up leg with a chance to match the first leg from October 13 – October 28.And the latest CPI report comes on Friday – likely the largest volatility event of the week.The price is a short-term retracement of an intermediate-term bear market.All doubts should be resolved in favor of the bear. A.F. Thornton
Founder's Trading Journal Interim Update – 11/4/2022 Nov 4, 2022 AF Thornton 0 Comment Good Morning:The strong October jobs report this morning confirms my theory that even in this recession, the declining population will keep employment growth stronger than we have experienced in the past.And given the people dropping like flies from the jab, the labor shortage will only accelerate.Futures are higher this morning to 3780, opening at the top of yesterday’s candle and suggesting a potential pivot at the 50% retracement for a second rally leg higher, just as I had suspected might occur and mentioned yesterday.If the market follows through, note the power of the nominal 20-week cycle – even in a bear market.Seeing the positives, the addition of put positions yesterday keeps us on our toes. The new, major overhead resistance now drops down to 3800, also the new Gamma flip point.Above that level, we believe dealers switch back to a positive Gamma stance, giving prices a bullish edge. Above 3800 resistance, we mark 3835 and 3900 as resistance. Support shows at 3710-3700 and 3650.Yesterday was a relatively quiet session after the S&P 500 gapped down to open at 3700.Contemporaneously, the VIX dropped back to 25, but there appears to be no incremental demand for long put protection.Our implied volatility metrics suggest traders are still content selling downside puts into market drawdowns. There is just no bear follow-through.Despite the Put Wall support remaining at 3600, the new flow coming into 3700 has made it a sizeable Gamma strike and decent support.Given the dynamics, you can see why we favor an upside recovery in the short term.As new data comes in, we will reassess.A.F. Thornton
Founder's Trading Journal Interim Update 11/3/2022 Nov 3, 2022 AF Thornton 0 Comment Good Morning:First and foremost, the Navigator Swing Strategy triggered a formal sell signal at 3878.75 yesterday. The alert formally closed out the 10/13 buy signal at 3595.Keep in mind that save for holding a few calls from 10/13, the Founders Group never sat tight in the signal, preferring to work the hourly chart signals on the way up. As noted a few days ago, we exited the last trade just above 3900.And there was no surprise yesterday; the Fed delivered bad news exactly as I thought they would. Given that the market expected the rate increase, it rallied initially, as expected.All appeared to be well until the Fed Chairman pulled the pin out of the grenade in one sentence during the press conference – “rates may have to go higher than we originally forecast”.No wonder President Orwell felt compelled to give another incoherent babble last night from a train station. His dystopian Nazi stage was unavailable.He sought to bring unity to the Country, especially against Republicans. He succeeded in unifying most of the Country against him and his globalist comrades in the Uniparty.Meanwhile, back at the ranch, futures are at overnight lows of 3727 at this writing and down from highs of 3780. Look for support in the 3710-3700 area, then 3650. Upside resistance shows at 3750, 3800, and 3834. We are looking for very high volatility today as post-FOMC macro adjustments are fueled by the onset of negative Gamma, increasing implied volatility, and large zero-day to expiration option flow.SPY 360 / SPX 3600 forms the Put Wall and downside target, as outlined yesterday. The bears have the football again. Higher implied volatility and negative Gamma will pressure the markets lower from here.I would flag the risk of a surprise, upside reversal. First, to get barely two weeks out of a nominal 20-week cycle turn is almost unprecedented. At this same juncture in past secular bear markets, the S&P 500 index usually rallied for eight to nine weeks, albeit not in a straight line. Objectively, this could or should be a pullback of about half the gains recently achieved from 10/13. The Fed Chairman’s right jab could have exaggerated the normal retracement. I want to leave that on the table.The mirror image of that claim would be that this leg down is so ominous that the market could not sustain a two-week rally. I find that a hard pill to swallow. So I included a chart above with the larger and smaller components of the 20-week wave.The Put/Call ratio screamed too much short-term bearishness yesterday, and the VIX did not confirm the sell-off yesterday.We have unemployment claims this morning, the October employment report tomorrow, the CPI next week, and the mid-term elections next Tuesday. And especially regarding the elections, a Republican takeover of the house and Senate could trigger a temporary rally.Stay tuned; I will be in the trading room at 10:00 am EST. Gap Rules are on the table at the open.A.F. Thornton
Founder's Trading Journal Pre-Fed Update – 11/2/2022 Nov 2, 2022 AF Thornton 0 Comment Good Morning:First, I will be in the Founders Trading Room at 10:30 am EST to prepare for the 11:00 am Fed rate announcement. The consensus continues to be 75 bps. A few speculate that a full point is possible, but I will stick with 75.The focus is on the forward guidance if any. Most likely, the Fed will guide that everything will be data-driven. I do not expect them to be dovish.The meeting comes on the heels of Europe reporting 10.1% inflation last month and a relatively dysfunctional U.S. Treasury market. In that regard, and given the Fed’s opposition to the free-spending Orwell Administration, the Treasury could counter the Fed by announcing its Operation Twist recycling program – to tap down rates at the long end of the curve and attempt to boost the stock market into the midterms.But there are many other volatility events ahead of us near-term, including October unemployment on Friday, the mid-term elections, CPI next week, etc. But getting the Fed out of the way for a few months helps the bulls.Yesterday the market dropped rapidly into our lower boundary at 3845. Futures were flat overnight, holding 3860.I anticipate a quiet morning ahead of the Fed announcement. Resistance is at 3900, then 3950. Support shows at 3850, then 3800. But given all the recent volatility, the wider range is 4000 overhead and 3600 below.The short-dated implied volatility for the S&P 500 is near 40% today, suggesting traders are looking for a 2% move. That would be plus or minus 75 points from yesterday’s close, around 3862.My advice is to forget the Fed and the news. We are in the markup phase of the Nominal 20-week cycle, and it is still early. Looking at the dailty chart, more sellers await at 4000, rather than here. But even those are the lightweights. The big sellers presently congregate at 4150. My best GUESS is that after some initial selling following today’s meeting, the market drives up to 4150. After gains convince everyone that a new bull market is underway, the floor will give way to one of the worst, steady, and most destructive declines in stock market memory into March. I don’t know what the catalyst will be – just that there will be one.I hope I am wrong; it wouldn’t be the first time. But let’s take it day by day, and we will get positioned for the next leg once the dust settles.As we all know, we rank our decision process first on price action, second on the Navigator Algorithm, and last on A.F. Thornton’s opinion. I rank last for good reason! Always defer to rules number one and two,A.F. Thornton
Founder's Trading Journal Interim Update – 11/1/2022 Nov 1, 2022 AF Thornton 0 Comment Good Morning:Looking at the options market this morning, the Call Wall (highest open interest and Gamma) is now solidly placed at SPX 3950 and SPY 395.Expect it to act as our ceiling into the Fed announcement and perhaps after. If we go to 3950 today, the price level will likely cause more chop and pinning like we saw yesterday around key strikes.But more concerning, the street is not hedged as they have been ahead of previous Fed meetings. With the Put Wall (highest put open interest) down at 3600, even a parachute won’t help if the Fed disappoints the “pause” or “pivot” crowd Wednesday – and I am almost certain the Fed will disappoint them.One investment bank yesterday said it well, pointing out that tomorrow could either be the best day of the year thus far or lead to an 8% intraday drop. Nice odds, right?This 50/50 proposition is where gamblers make fortunes. I am not a gambler. I work with statistics and probabilities, and in the current situation prefer to wait it out.Singles and doubles brought us 600%+ returns this year, not home runs. And we don’t need a home run loss, either.The next important turn will be around the election. That turn is not the only turn ahead, just one of the four important turning dates we encounter in a calendar year.In an unusual turn of events, we have the Dow leading and the NASDAQ 100 bringing up the rear guard off the October 13 low. The S&P 500 is in the middle.The S&P 500 has good support at 3905, 3880, and 3845 today, with resistance at 3925, 3950, and 3980.If we drop down to that level, expect some pinning around 3850 for most of the day. Price will likely mark time into tomorrow’s Fed announcement once it reaches today’s destination.I will be in the trading room from the Open through lunch. Gap Rules apply today.Today you can skip day trading as there may be scant opportunities as the market moves sideways into the Wednesday Fed announcement. And recall that the better the stock market has done, the more likely the Fed will stay the course of normalizing interest rates and selling off their balance sheet – assuming anyone wants what they are selling.Realize that as rates increase, bonds will start competing with stocks for capital. It has been a long time since investors earned a decent interest rate on CDs or bonds, including municipals.Tomorrow will be the day for action, and I will be in the room for the fireworks.A.F. Thornton