All posts by AF Thornton

The Founders Group is adding another 5% each to the existing SPY and DIA calls here on the five-day lines, 467.75 and 357.25, respectively. This brings each position to 30% for an aggregate 60% commitment to the markets.

Be mindful of the leverage. These are big boy positions.

The market moved back into the balance range per the morning discussion and we are entering at the range bottom, coinciding with the five-day line.

A material close below the five-day lines remains the stop.

A.F. Thornton

Navigator™ Swing Strategy – 25% SPY and 25% DIA Calls – Add on Dips to the 5-Day Line / Navigator™ Day Trading Strategy – Bias is Long – Key Levels Below.

The damage had been severe even before the market bottomed a week ago today. Just look at this chart from late November:

The broad market suffers from the reality that the Fed is ready to pull the punch bowl away. The question becomes whether a handful of tech stocks can continue to carry the market post the Fed announcement this week. As the saying goes, If the soldiers fail to join the fight, the generals eventually fall. That would be an unpleasant way to end the year.

The top five stocks are now 25.5% of the S&P 500 index. You have to go back to 1964 to top that figure, and the market was topping then for a 50% trading range market that lasted 18 years.

As well, trailing P/E ratios in the S&P 500 are at the year 2000 levels, with the NASDAQ ratios exceeding that era’s tech bubble. It’s incredible what unprecedented liquidity and zero interest rates can do – until they fade into the annals of history.

By the way, President Biden told us Friday morning that inflation would be a blip on the radar screen. Then late afternoon, the Bureau of Labor statistics let us know that they would be changing the formula used to calculate the Consumer Price Index. Way to go, Joe!.

That is the same way the US Government initially fought inflation in the 1980s – change the formula. They changed the definition of “Vaccine” and “Anti-Vaxxer” earlier this year.

If you go over to ShadowStats.com, they keep a record of all of these “changes.” You will find that the CPI rate over the last year on the 1980s formula was 14.7%. That is a bit closer to reality than the 6.8% rate just reported. But surely we can get the rate even lower if we change the formula again. Indeed, you cannot make this stuff up.

Swing Traders

We start the week with some overnight gains in the major indices, including our core S&P 500 market index. So our entry at Friday’s close for the S&P 500 and Dow looks to be profitable out of the gate. It will be every bit as tempting to grab the quick gains as it was last week. Stay alert for my signals. The 5-day EMA line will be our stop and where we may add to positions if it is successfully tested.

The market has the opportunity to test the all-time intraday high from last month pegged at 4735 on the new March 2022 S&P 500 futures contract. This should be formidable resistance, not to mention that we have the Producer Price Index tomorrow and the Fed announcement Wednesday for a dose of volatility. Friday is also Quadruple Witching – when all the multiple time frame options and futures expire. Interestingly, market-makers forecast half the volatility (75 points in each direction) this week than in the past few weeks.

With Santa Claus coming, fear indicators still high, and a breadth thrust last Tuesday, the market could move back up to the top of the weekly channel. So we have set the WEM high at 4785 on the cash index (and a comparable Dow level at 35,600) as our next targets. We expect the market to crawl up the wall of worry to those levels. It will help if the soldiers wake up.

Day Traders

Watch your resistance here. Both Balance and Gap Rules are on the table this morning. Also, there is a discernable “V” reversal pattern projecting 4880 if it takes. Friday’s halfback and VPOC at 4683.50 would be my absolute threshold to remain long today. Still, acceptance below the balance area high around 4705 would be the most lethal as it would confirm price action back inside the balance area and a rotation down per the rules.

The game is to watch for the fade on 100% long overnight inventory (short it if you like) and see if it grips. If so, does it make it to full gap-fill (at Friday’s 4705 high) and then reject or come into range? Coming back into range may carry different consequences due to balance rules in today’s situation. Should the market come back into the four-day balance area and find acceptance, there is potential for rotation back down to the lower end of balance around 4550 or so.

As always, then, early trade will be noteworthy. And given the context, assume at least some potential for fade and monitor closely for how much, how far, and how fast. All of that is Market Generated Information to carry forward today.

Holding above the balance area high is bullish and puts the Globex high at 4723.25 and the All-Time High at 4735 into play.

A.F. Thornton

The Founders Group are long calls equivalent to 469.50 on the SPY (S&P 500) and 359.25 on the DIA (Dow Industrials) at the close. These trades put our Navigator Swing Strategy long at 25% in each position, with 50% remaining in cash. I will catch up with all of you over the weekend.

A.F. Thornton

There is a lot that does not make sense right now. But regardless of the narrative, price action is what matters.

We sit here today with the highest inflation reading in 39-years. Yet Gold does little or nothing (and has done little or nothing), rates remain low, interest-sensitive growth stocks rally, and so do interest-sensitive utilities and REITs.

Perhaps the market believes that inflation is peaking here – and there is a solid case to be made.

Whatever the Fed plans to do, it is no secret and is already baked into the tape.

If the market holds its ground at 3:55 EST (in 25 minutes), which means it holds above 466 on the SPY, we will reenter a 25% position in each of the DIA and SPY at-the-money calls expiring January 18th at or near the closing price.

Since we will be executing in the last 5 minutes, I can only publish after the fact. At the moment, I am simply waiting for expiration to be out of the way.

The DIA has remained the strongest of the indices this past week. It has a symmetrical V reversal pattern, which is also visible in the SPY.

Straight calls are okay now with the drop in the VIX today. We will hold our other 50% in abeyance. I will communicate stops over the weekend, as they are unnecessary (and not possible) on calls. Our risk is limited to what we pay for them.

Stay tuned,

A.F. Thornton

The gap-fill has morphed into a look above and fail per balance rules on the SPY and the DIA. We will take our stops at the market here. At least we tried, and we will try again if circumstances warrant. If you did a debit spread with us, you should have a slight gain due to the credit end of the spread. The Weekly Expected Move is still drawing the market down into today’s expiration at the close.

Let’s give our stops some room – basing them on an hourly close below the stop level. I will advise you if they are triggered.

The Founder’s Group just nibbled on a swing buy with the DIA at 359. We used a January monthly expiration call debit spread. We targeted a 25% position with a 358.25 stop. Futures or shares of the cash index are fine too, depending on your tolerance for leverage. This brings the Founder’s Group to a 50% swing position.

The Founder’s Group just nibbled on a swing buy with the SPY at 469. We used a January monthly expiration call debit spread. We targeted a 25% position with a 468.25 stop. Futures or purchasing cash shares are fine too, depending on your leverage tolerance. Yes, it feels like jumping into the deep end holding my nose. But when the market rallies on bad news, you do what you have to do.

Navigator™ Swing Strategy – Buy on Dips to the 5-Day Line / Navigator™ Day Trading Strategy – Bias is Long – Looking for a Partial Gap Fill.

You will start believing in my magic after yesterday, if not sooner. The market must have read my script. It dipped right to the top of the Weekly Expected Move at 4675 (actually 4672), bounced, tagged it one more time, then went into a bull microchannel to close at a marginal gain over Tuesday. Of course, the price action was mainly inside the pinned range established after Tuesday’s (as yet) unfilled gap opening. In a sense, then, the market is still balancing at the top of Tuesday’s breakup candle.

Given the bullish recovery on Monday and Tuesday, I theorized that the market makers must have jumped to neutralize their deltas right at the WEM high, lest the market leaves them hanging again later this week. And I almost issued a nibble signal to start accumulating with them, but I am more inclined to buy below the WEM high and closer to the five-day line.

That reminds me – breakouts fail 80% of the time. We would need a breakout for any meaningful swing profit from 4672, and I don’t want to go through a drawdown first. Patience is a valuable commodity in this business. Remember that we always look for the “cradle trade” after the first run through the Navigator™ Algo trigger. And even with all of that, we might still be at the top of a new trading range.

And the Fed meeting announcement is now less than a week away. It seems insane to take any position before that meeting. Yet, they have already forecast a decision that seemingly would be the worst case. If the market is rallying, perhaps that means the market welcomes the Fed fighting inflation – though it will be difficult to avoid a recession as the Fed already blew it with their “transitory” nonsense.

If I am thinking about anything this morning, it is why interest rates are so low. With the short-term rates still close to zero and falling again, why would anyone find the rates acceptable? After all, if you bought treasuries a year ago, you lost money in real terms.

If you cash year-old treasuries, you can only buy 80% as many groceries, 70% house, 70% car, 50% gas, etc. An institution buys the sovereign debt of many countries, including the U.S., with balance sheets well over 100% of GDP. Sovereign debt levels, by any measure, are unprecedented at this writing.

Institutions all over the world are not dumb. The only reason I can think of as to why they would find negative “real” interest rates acceptable in this environment would be that they are more concerned about the return “of” their money than their return “on” it.

In that sense, then, would not higher interest rates be a good thing? Would they not signal a more robust economy? Less fear?

Swing Traders

We are looking to buy a “continuation” trade. But so is everyone else. We look to avoid a bull trap at these levels. We have a range of support from the Navigator™ Algo trigger at 4611 to the five-day line at 4655. Somewhere in that zone makes sense for an entry, fully recognizing that we could be buying in the middle of a new trading range. And that is the point now. This new market is more volatile. The easy times are behind us with the apparent shift in Fed policy.

Day Traders

I seriously doubt I can top yesterday. I still think the WEM high (now solidified around 4672) will be a magnet the rest of this week. I have seen the market balance a few points around it in the past, with the WEM high level in the middle. Looking to the left on the daily chart, we could see a similar, symmetrical, tight, range pattern form to the right.

Since the overnight action is inside yesterday’s range, use the overnight high around 4700 and the overnight low at the WEM high of 4672 as your breakout points today. The more time spent at the WEM high, the more market makers have the opportunity to hedge their unpleasant experience from Tuesday. A break of yesterday’s low at 4672 would change the tone back to negative – at least down to the five-day line at 4655 or so.

Capturing the hill at 4700 has been the battle of the century now since November 5th. Does persistence beat resistance? Perhaps if the Santa Claus rally is on tap. First, target the VPOC at 4715 if the market can poke above 4700 today. Then target the all-time high that sits 4740.50.

The cycles and seasonal patterns don’t forecast clear sailing until the 15th, also the Fed announcement day. And as we found out over the Thanksgiving holiday, seasonality may not matter this year.

Overnight inventory is net short, so a small pop near the open is in order while Globex traders take profits. I plan to mark the opening range and project it in both directions. When the range breaches, that will be your first clue. I would pick up two contracts.

Take your profit on one at the breach range target. Hold a runner if we have a solid break above 4700 and target the VPOC at 4715. See how it goes from there. On a short position, take a profit at the breach range and hold a runner if we start trading below yesterday’s low (also the top of the single prints) at 4666, with a final target in the 4655 to 4622 range. Look for a pivot from one of the key lines. The five-day, 21, or Algo trigger start at 4655.

A gap-fill starts at 4747.25. At the other end, the all-time high is 4740.50.

Good luck today. Stay alert for a swing trade signal.

A.F. Thornton