All posts by AF Thornton

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

It turns out my uber-aggressive long position was THE bottom last Friday afternoon. And I continue to regret not keeping my call debit spread position beyond Monday. Sure, 60 points were great, but 160 would have been better. Let there be no doubt that I am human – the fear infects me sometimes (even with my Crystal Ball).

Yesterday went as predicted. 15-minutes into the gap, the market pinned. The Gap and Go trade per Rules #2 and #4 was successful but rendered fewer gains than would have been the case without the overnight burglary. And there was a hell of a lot of merciless, painful short-covering yesterday. All of us have been there at least once in our career, and it hurts badly.

That reminds me of an important point. Two-thirds of yesterday’s gains occurred in the overnight session on negligible volume. That leaves a lot of white space on any invasion of the gap, something that usually follows in a few days. It will be an unpleasant visit into the gap zone without a parachute, as is typically the case.

Moreover, the evidence suggests that yesterday was primarily short-covering. There were also a lot of corporate buybacks last week. But retail traders were scarce, as were the institutions. We need follow-through “real buying” on good volume to ensure that the institutions are as foolish as the rest of us running into this House of Cards.

There are still those China Real Estate Collapse, Consumer Confidence, Flattening Yield Curve, Taiwan, and Ukraine things, lest you get too happy about yesterday. Those risks don’t even account for the severe damage and broken stocks under the hood.

And that reminds me, President Biden says he yelled at Putin yesterday. Biden threatened to cut Putin off from U.S. banking if Putin invaded Ukraine. Putin likely thought to himself, “I will keep my gold rather than your worthless paper money system, thank you.”

My theory of the macro case remains a trading range, if not new all-time highs. But the Elliott folks still have a “2” wave up argument here, with a “3” wave down ahead. The 78% retracement is the usual line in the sand, and we did stall there yesterday. I don’t completely discount the argument – and it would fool most people betting on new highs.

Tinfoil Hat Traders

Sure, we were expecting Santa Claus soon. But one could argue that the Fed is juicing the markets into next week’s meeting so that they can introduce a faster taper of QE Infinity and carpet bomb the markets.

It goes back to my Orange County/John Wayne Airport takeoff analogy. They are full throttle at the Fed’s Plunge Protection Team before shutting the engines down and the jet stalls.

Fed buying might also be the explanation for the Junk Bond jump yesterday. How much junk do you want at 4% interest? Other than short covering, only the Fed wants to be under-compensated for that kind of sizable risk.

Swing Traders

When the smoke clears, the market did exactly what it should do to retain the uptrend. It came down and tested the November breakout and pivoted higher. Nothing to see here, as the bull market is very much intact.

Unbelievably, we are short-term overbought in a single day but still closer to structurally oversold in the bigger picture. With the Navigator™ now on a long signal, I am looking to add positions on pivots connecting from the five-day line (about 4640 today).

The market is at 4687 at this writing. There is a coincident group of support lines between 4620 and 4640 for a good, long entry on a pivot. Refer to yesterday’s discussion of the zone, and it would be lucky for us to get the opportunity.

Unfortunately, the market triggered the Navigator™ signal line overnight, so we were not awake to execute. That is why we are looking for an entry point. Note that traders could be fighting the market makers on any longs above the Weekly Expected Move high at 4675 until Friday’s close.

I will give the buy signal when it presents. Otherwise, we would be chasing the market here in the short term and could very well regret it. Heaven help you if you did not cover your short positions on Monday morning’s initial weakness as I counseled.

Day Traders

We made a slight new high overnight, and inventory is net long. So we have a 70% chance of a counter auction at the open. Other than that, there is little to guide us except to recognize that we are short-term overbought with a lot of resistance above us and the Weekly Expected Move high below us at 4675 to draw us lower into Friday’s expiration.

Market makers will fight hard to bring the market down to 4675 or below to flatten their weekly expiration risk. They could not have expected us to blow through the WEM high in a million years, having already doubled the usual volatility range.

With the VIX still above 20, watch position size. We have been experiencing wide daily swings in the indexes.

The WEM high ar 4675 or so could form a center to trade around the rest of this week. The opinion assumes the shorts have finished covering their positions. Expected moves can be less reliable in this kind of volatility.

Also, note the 4700 roundie above us. It could not hold this level as hard as the market fought for several weeks going into the decline.

With all of this in mind, your initial playground today should be between 4700 and the WEM high at 4675.

Traders should treat any move above 4694 with suspicion given the 4700 roundie and all the trading/resistance there since October. With the magnet of the WEM high at 4675 below. It would be an excellent short to the WEM high on a pivot lower from the resistance zone.

There likely will be buyers (or more short-covering) below the WEM high. See if you can project a 30-minute clearing breach trade and target double the range. Also, look to the 4620 to 4640 area to cover shorts or go long – if we are fortunate enough to get there. All the lines I mentioned Monday coincide in that zone. Buyers are likely to congregate there.

Everything today depends on whether the shorts are done covering their positions. There were a ton of them short into the hole on Friday – more than we have seen in a year.

A.F. Thornton

Today is Pearl Harbor Day. As with most events of that era, we are now more than 80 years out from that Fourth Turning. 80-years is the magic cycle from Fourth Turning to Fourth Turning. As you can see from our own Fourth Turning thus far, these turnings are not fun. I simply hope this one will be over soon.

Today we will see how the President’s conversation with Vladimir Putin goes. Putin has now amassed nearly 200,000 troops on Ukraine’s border. If Putin invades, Biden has threatened to take Russia out of the “SWIFT” banking system. Since Russia holds real gold now instead of U.S. Treasury ‘paper”, I am not sure he cares. It is a bit like bringing a sword to a gunfight. Maybe arming Ukraine is a better idea.

In addition to the Russia wildcard, we still have China ready to forcibly take Taiwan. And they want to build a new military base on one of the harbors they foreclosed on in the Atlantic on the West Coast of Africa. Perceptibly, that is too close to home for the U.S., even though our military bases surround China. Who said life is fair? Anyway, Taiwan is more concerning because they make most of our semiconductors.

China probably won’t cause any trouble until after the Winter Olympics in Beijing early next year. By the way, our “diplomats” are not allowed to attend as punishment for China’s human rights abuses. Big deal.

China points to all the January 6th Trump supporters still sitting and abused as political prisoners in Washington D.C. As China says, we have no room to criticize them. But then, hypocrisy is plentiful in our nation’s capital these days. Maybe it has always been so.

Am I just griping? No. I am reminding you to use stops. We are one news story away from disaster. No matter what, I always use a “disaster” stop any time I am free trading in the market. It might be 15 points below – but it is always there.

Since the market is dynamic, I use a 3 ATR (Average True Range) stop. I will expand more on how to set these some other time. It is there just in case something comes out of left field (no pun intended), even though I am otherwise bullish (or bearish) as the case may be.

All the recent consternation stems from the Fed potentially accelerating the taper next week, but the European Central Bank has no similar plans. Accelerating the taper is not a negative, just less of a positive. The end of the taper in Q1 or Q2 is more problematic. Raising interest rates is even more challenging.

Regardless of this rally from deeply oversold conditions, please don’t lose sight of where we find ourselves. If the jet engines quit, It remains a long jump from 30,000 feet without a parachute.

Swing Traders

Refer to yesterday’s discussion as to why we are bouncing. We got the bounce and closed slightly above the 5-day line, a net positive, but also right below the Algo trigger and 21-day line. The Dow Industrials led, as I had suspected would be the case. The laggards led us down, so they are the first to recover.

I hope you took my advice and covered any short positions on the initial morning weakness. My long S&P 500 call spread trade from the close Friday afternoon bagged a 60+ point profit, but I wish I had held onto it now. Our Globex sisters rocked the market overnight, and we will gap right through buy signals this morning. Robbed in the middle of the night again!

So with follow through this morning, we have our Navigator Algorithm buy signal. But we cannot chase the market. Moreover, we could now be in a trading range – so I don’t necessarily expect a move to new highs. I will alert you to any entry points on a reconnect to the 5-day line. Also, we need to see if New York follows through on Asian and European enthusiasm.

While the major indices don’t seem to have corrected that much, they are disguising massive damage under the hood. For example. almost a third of the stocks in the Nasdaq Composite are down 50% from highs. It is a two-tiered market, a less than ideal scenario.

After the shorts run for the exits this morning, we may (and likely will) roll down again for a retest, perhaps into next week’s Fed meeting. Let’s see what happens, and I will alert you to any entries now that the Navigator has rendered a preliminary buy signal.

Day Traders

We will Gap open right to resistance at 4660, on inventory that is 100% long overnight. Gap Rules apply. Rule #4 seems most applicable this morning. While one would expect a counter auction on such heavy overnight inventory, a lot of the action could be short-covering and there will be plenty more this morning. That is why I refer back to Gap Rule #4.

And it seems we are only a stone’s throw from new highs given the volatility at hand. I am betting on a Gap-fill this morning, but I cannot guarantee it. There are a lot of shorts out there waiting to cover.

4700 is the next goal, and then the old high is just below 4750. I am sitting today out until a storyline emerges. It is too late to chase longs unless we get a complete gap fill, which is a distinct possibility. More probable is a pinned trading range.

A.F. Thornton

I took a profit on the uber-aggressive swing trade at the 5-day line. In at 4404 near the close Friday and out at 4565 at the open for 61 points. I am keeping things tight at the moment until the dust clears.

A.F. Thornton

Bull markets don’t die of old age. The Fed kills them. And with the Fed admitting last week that inflation is no longer transitory, the thought that the Fed is considering homicide has been infecting the markets from top to bottom. The damage is serious, and we deal with a deeply wounded market.

All time frames (Monthly, Weekly, and Daily) have ceased one-time framing higher for the first time this year. Again this week, options market makers are pricing in considerable volatility. The expected move is double the normal range in each direction from Friday’s close (120 points on the cash index). For the cash index, the WEM high is 4665, and the low is 4411. As one concern, weekly options pricing allows for a potential move to the October low before the market makers start losing any money. It is a great time to sell premium as an options trader.

However, now that the market has everyone’s attention, it may be ready for a bounce. I gave an uber-aggressive long “trade” signal late Friday at 4604 on the S&P 500 (apologies for the 4614 misprint). I am holding a call debit spread this morning, good through the 21st, and we will see if it becomes profitable. Using a spread to tamp down your Vega risk is critical, as a straight call profit can get muted if the volatility abates.

This aggressive swing trade is not supported by a Navigator buy signal, which has yet to materialize. This trade is more of a technical day/swing hybrid and oversold play that I will not hold for long. I may sell into any strength in the next few days. But it is useful to review the technical context.

The market sentiment is close to a short-term, negative extreme which is bullish. For example, the VIX and the Put/Call ratio are at the highest level for the year. The CNN Fear/Greed index is at an extreme as well. In other words, fear is back, which is positive for a bounce.

Price is intersecting with the weekly mean, the 50, 89, and 100-day lines, the weekly channel uptrend line, and a 50% retracement of the October to November rally. These are technical levels where institutions typically add to positions.

Additional bullish reads include the laggards (like the Dow (DIA) and Russell 2000 (IWM) bouncing Friday while the monsters of tech (NASDAQ 100 – QQQ) were finishing the initial phases of their declines. Neither the Dow nor the broad NYSE put in new lows, diverging from the other indices. So far, the DIA and IWM are holding their 200-day lines. Junk bonds are not confirming Friday’s lows either, and we had fewer decliners on the A/D line. There is more, but you get the picture.

This confluence gathers around the 4550 level, which should be the key level to watch for now. If 4550 does not hold, it is a quick trip to the next confluence of support at 4500. Short term, I expect a bounce up to 4625 or so, then another roll down to test last week’s low at 4492. All of this down leg should culminate in a final low or retest around the 15th when the Fed wraps up its latest meeting and announcements, and the 80-day cycle trough is due. The fact that cycles bottom around quarterly earnings and Fed meetings is no accident.

Swing Traders

You can watch for my technical setup signals, but the better wisdom is to enjoy the holiday season and wait for the Navigator Algorithm to reset on the daily timeframe. This is a dangerous market with a lot of volatility. Last week, we had 2% and 3% daily swings, which is stunning with five or 50 to one leverage on a futures contract. There are more of those swings in front of us.

This is not the typical correction we have seen over the last year. This decline is much more serious and could signal the onset of a cyclical bear market. However, bull markets rarely transmute to bear markets immediately. The market usually establishes a trading range first, and I could see such a range forming from the October low to the recent highs (roughly a 10% range). Otherwise, if this is merely a deep bull correction, we will see some spike lows (remember those?) and fireworks before the uptrend resumes.

Money managers and hedge funds still have record long positions and margins. Unwinding all of that, should these professionals head for the exits, will make last week look like a blip on the radar screen. As well, Libor Rates inverting and the crash in oil prices warn of a potential recession ahead. With Consumer Confidence in the proverbial toilet, a recession is definitely on the table. It all depends on the virus fear mongers, the Fed, and the fiscal stimulus coming out of Congress.

Day Traders

It does not get much better than this as far as volatility goes. However, no matter how it looks on your screen, these are huge price bars, even on a five-minute chart. Consider reducing position size (e.g., use micros rather than minis on your futures trades) with the volatility at hand.

What the market is doing right now is bouncing the laggards that led the market down while the large-cap tech stocks finish correcting. So your best trades could be the Dow and Russell Futures today, rather than the S&P 500 and NASDAQ 100 – both of which bear the brunt of the large-cap tech stocks catching up to the correction.

We will come into the open with overnight inventory net long – so expect some profit-taking first. Use Friday’s candle range as your balancing area. You are looking at a playground roughly from 4500 to 4600.

If we head north, watch your downtrend line which could stop any return to 4600. The 5-day line (currently at 4564) is the flex version of the downtrend line and has been provided considerable resistance since the decline started. Closing above this flex line (and trendline) will be the first step to bringing back the bulls.

Going south, the intermediate, weekly channel uptrend line can also stop any return to 4500. The 100-day line is the flex version of the weekly channel bottom/uptrend line. Closing below those lines bolsters the bear case, likely to establish a trading range from the October low.

Use a break above the overnight high at 4572 or below the overnight low at 4531 as your first directional clues. Breaks of the trendlines also help you determine direction but watch for fakeouts. As always, monitor for continuation, which is best accomplished using a market and volume profile chart. When you see volume and time at price confirming direction, you have the “continuation” we look to confirm.

The bottom line is to consider long trades at the low end of the balancing range and profits at the high end. Be very careful taking positions in the middle, which is where we are slated to open at this writing.

Short trades are off the table for now unless or until we start closing candles below Friday’s low at 4492 on the hourly chart. Even then, it would be a quick trip to 4450. Otherwise, the market is very oversold here, and you should consider covering any short positions on weakness. The lows of the last three trading sessions congregate around 4500, so it is an identifiable line in the sand.

Also, keep in mind that we tend to put in lows on Monday and turn it around on Tuesdays. This is a notably strong seasonal period for stocks. However, the Santa Claus rally may not ensue until after the Fed meeting on the 15th.

Be very, very careful here. Don’t box yourself into a corner and watch position size in this volatility.

A.F. Thornton

Very, very aggressive swing traders, this is your moment at 4604 with a 15 point stop. The put/call ratio is approaching 1.0. as the market puts in a short-term double bottom. I am using a wide stop to allow for a flush. This trade could go for a couple of days. There is no Navigator buy signal – this is a more technical setup trade. At the very least, I would cover any short positions.

A.F. Thornton

All market references below refer to the S&P 500 Index Continuous Futures Contract – 24-hour Session.

Oil has been my “One Thing” lately. I always try to find one thing that tells where we find ourselves in this crazy environment. Oil has fallen more than 20% in the last month – otherwise known as a bear market. It looks like there is some accumulation around the $65 level. But the implication is that the markets expect the China Virus insanity to continue and negatively impact the economy. It is already starting in Europe, and they can ill afford any more policy mistakes. Neither can we.

Prices at the pump should begin to fall. Perhaps this will lead to a peak in inflation. Why? The crash in oil / gas-pump prices tells me that the policy errors by the Federal Reserve may now lead to faster tapering – and deflation. They will need to be the most skillful Fed in history to avoid an asset implosion and debt crisis. Demand should wane – right as supplies skyrocket. What timing!

But this crash potential has me doubting whether they are really going to taper or raise interest rates. They could be jawboning us. That may be all they can do to avoid the inevitable reckoning ahead. Perhaps this latest virus salvo is part of the engineering to do the Fed’s job for them, leaving the politicians blameless.

Let me also say that this is the most serious conundrum any Fed has faced in my 34-year career. They have inflated assets and now goods and services at the expense of the lower and middle classes. Is it any wonder that there is a wealth gap? Is it any wonder that there is so much unrest?

Oil is telling us a recession is possible in 2022. If so, look out below. And since the powers that be had already taken the “Great Recession” label for the last debacle in 2007-2008, let’s coin a new phrase. How about Armageddon? It will seem so when the piper has to be paid.

It was only a week or so ago that I was waiting for the breakouts in the Dow, IWM, XLF, and DBC to retest, and I had my finger on the trigger. All three indices crashed through their retest levels and now sit back at the bottom of their trading ranges. It is a “Look Above and Fail on the daily charts per our Balance Rules. It is also a notable reversal from a final bull flag.

My thoughts continue to be that this latest virus scare has been engineered. See the real story here (forward to the interview with Dr. Robert Malone, inventor of mRNA). I have discussed the disconnect of the latest virus to reality in previous writings. It is Mass Formation Psychology at work. The question remains, who is running the program?

Speaking of Mass Formation Psychology, all major indices are on support and should bounce here. The spikes in volume and negative sentiment support a bounce soon. The S&P 500 finally tested the 50-day line and the weekly mean. But the index still struggled to overtake the 5-day line all day. It may be worth a swing trade for a very aggressive trader here.

However, we do not have a Navigator buy signal as yet. Given the vertical bear candles behind us, I expect a minor reversal before we roll over again, at least for a retest of Tuesday’s low. And all I am doing right now is scalping/day-trading. I lay out the roadmap here every morning. Follow it, and you will wrap up your day with a smile.

To understand my approach, all one needs to do is look at last week’s overnight thrashings before you awakened. That is why I avoid overnight (weekend) trades unless I plan to stay up all night. With the VIX trading over 20, it does not make sense to hold overnight.

At the risk of being too negative, I will also disclose that I see the same setup now that preceded the March 2020 virus crash. When we get the Navigator sell signal and any such setup, I can never predict the magnitude of the decline except to ascertain the current cycle at work.

The 80-day cycle seems to be the culprit right now, and we don’t typically see crashes on that cycle. Contrast that with March 2020, when the 9-year and all lesser cycles were overdue. The greatest uncertainty is whether the 18-month cycle bottomed in October. That could be the wildcard. In fact, I warned you about this late November dip on August 30th, more than three months ago! Who says I don’t have a Crystal Ball?

Swing Traders

The check is in the mail. I will let you know.

Day Traders

Closing above yesterday’s high at 4693.75 gets the ball rolling north, but it will be a rocky road with the five and 21-day lines to conquer up to 4620. Taking out yesterday’s halfback at 4550 brings doubt to the table. Markets love to retest new lows, or at least attempt a retest in the first five trading days. Keep that in mind if we are in the southbound morning lane.

The WEM low is at 4445 if the market really wants to put on a show before the weekend, but I doubt we could tag that level this late in the week. I am more in the bounce camp than another spike low. But I am not infallible – Crystal Ball and all.

I will update any necessary comments and levels after the employment report in the morning if required. Otherwise, I think the roadmap is clear right now.

A.F. Thornton

If valuation matters, there is no precedent for where we find ourselves. The Wilshire 5000 to GDP Ratio, Warren Buffets favorite benchmark, exceeded 214% at last week’s peak.

At the 2000 market top, the number was about 139%. At the 2007 top, it was just above 100%. Even before the China Virus crash in March 2020, the number was 150%. When these markets corrected, the number rolled back to the 50% to 60% range.

As you know, the NYSE index erased seven years of gains almost overnight when the China Virus went mainstream a little more than a year ago. And it isn’t just the overvalued stock market, which is why this is called the “Everything Bubble.”

We all know this won’t end well. More money has gone into stocks in the last year than the last 20 years combined. We try not to think about it until there is some negative, vertical price action. Then it is like, “right, this is the stratosphere.”

Perhaps most concerning is that the market has become more a function of the Fed’s balance sheet than anything else. The correlation with the S&P 500 Index and the growth of the Fed’s balance sheet is nothing short of stunning.

Market participants look to the Fed rather than the economy, earnings, or other fundamental factors. So when the Fed talks about slowing the growth of the balance sheet by tapering their latest Quantitative Easing program, you can understand the market’s negative reaction.

Typically, the bloodbaths usually occur on the four-year cycle corrections. In our case, that would be a trough in 2024. Sometimes, we can start into such a decline a year early. Starting now would be very, very early. But we could certainly start with a trading range as the Fed tapers the balance sheet. And Chairman Powell admitting the obvious, that the recent inflation isn’t transitory, has the market anticipating a relatively fast taper.

Swing Traders

We are in the zone for a minor reversal. We are trading around the 50-day line and the channel that started from the correction about this time last year. Smart Money confidence is climbing to 80%, while fear indicators continue to rise. Both indications are positive for a short-term low.

Due to the size and velocity of the bear candles over the past week, I expect any reversal higher to be minor. This does not feel like the instant gratification pullbacks we have recently experienced. We need to be very, very careful here and watch for market-generated information. Turn the TV off.

I am reminded here of our good friend WWSHD (When What Should Happen Doesn’t. We normally see strong cash flows and positive returns the last few days of the previous month and the first few days of a new month. It is not happening. We are in the strongest seasonal period for the stock market from Thanksgiving to Christmas. So far, Santa Claus is missing in action. As I often counsel, success in this arena is more about watching what the market isn’t doing rather than what it is doing.

Swing Traders should continue to await my signal when the Navigator Algorithm flips the lights back on. So far, we are not there yet, but we are in the zone.

Day Traders

Spike Rules are in play this morning. Acceptance within the spike is bearish, which is where we are starting this morning. But like yesterday, traders were somewhat short in the hole at yesterday’s close, given how far away the settlement was from value and the POC.

While we are slated to open well below the Globex high, there is still potential for corrective activity early in the session. How much will be very important MGI.
Moving below yesterday’s low on faster tempo and bearish internals puts the gap and next VPOC (Key Levels) into play as targets.

The top of the gap is 4487.25, the bottom is 4479.75, and the next VPOC is at 4471.75. But remember there is about a 20-point area around the 50-day line and the channel trendline coming up from last year at 4530 or so where bulls and bears will battle out support this morning.

Overnight inventory is net long, so there could be some profit-taking at the open regardless of the ultimate direction today. You may want to sit it out for a bit until the market takes a final direction that you can monitor for continuation. The market is oversold here, at least for the very short term.

Good luck today.

A.F. Thornton

All references to the market relate to the S&P 500 Index Futures continuous contract, 24-hour session.

Traders finished yesterday’s session short in the hole, but also at a Fibonacci 38.2 retracement from the recent market top – a typical bounce point. Unsurprisingly, then, overnight trading was net long as there likely was some buying and short-covering.

That also gives us an orthodox gap higher this morning, meaning the gap is still within yesterday’s range. Fear gauges are high (which is getting bullish), and the market is looking short-term oversold (also bullish). All in all, a bounce is in order today, and then some balancing (sideways) action.

Swing Traders

Your day is coming, but continue to hold for the Navigator Algo to conjure up a buy signal.

Day Traders

I promised you a volatile week on Monday, if for no other reason than the Weekly Expected Move is double any typical week. Today is December 1st, and fund flows should be positive over the next few days.

But the monthly candle turned out negative for November, casting a negative pell over December. The cycle bottom stretches into mid-December, so any relief rally could be short-lived. Be sure to mark the monthly RTH session open this morning on your charts – it will be important this month.

After the spike higher, look for a potential balancing, inside day today and trade the extremes of the value area if the market is so inclined to deliver the sideways action. Use the halfbacks at 4600 from yesterday and overnight as your bull/bear threshold today.

Your first downside target is the overnight low at 4571.50, then the RTH low at 4557. Traders have been trying to push the market into the 50-day line around 4530 for three days, but the market does not seem to want to tag it. Nevertheless, keep the line on your radar.

Upside references begin to shift to the five and 21-day lines, both hovering around 4635 or so. Those lines have to be conquered on a closing basis to put the bull back on the table. There is a downtrend line converging on the two lines as well, so this area will be tricky, and it might be best to sit out the battle. In recent 80-day cycle declines, this same area has been a bull trap, so be careful.

Good luck today. Instructions for tomorrow’s trading room will follow later today.

A.F. Thornton

If nothing makes sense to you right now, you are not alone. We are all victims of Mass Formation Psychology, and it is no accident. It is a PsyOps operation likely conducted out of the leading, left-wing, behavioral think tanks at the behest of the Davos totalitarian cabal. Dr. Mattias Desmet has the best handle on this and the best explanation I can find. It is worth a few minutes of your time to listen to his analysis here. Mass Formation Psychology is genuine, and the future of our Republic is at stake.

And that is the best introduction I can give you as to why the market is struggling in the wake of a new strain of the China Virus that is (i) milder than its previous cousins and (ii) just as vaccine-resistant. When one of the Big-Pharma cartel chiefs announced last night that it could take months to develop a new vaccine, the market dropped precipitously. That’s right; a less virulent strain of a virus that is already vaccine-resistant with a 99% survival rate is tanking the market.

Now, I am fortunate enough to have a brilliant reader base. You are not so easily distracted. You already know that you must keep your eye on the ball. The problem at hand is less about the new virus strain and more about the overvalued market. Fed policy is becoming less friendly. And even if the problem is about the virus strain, the market is focused on how governments worldwide will use the event to implement more authoritarian totalitarianism that could negatively impact corporate earnings. In other words, think of the theme “the cure is worse than the disease,” and you will be close to the truth about the market’s concerns.

Of further note, the stock market just triggered the “Hindenberg Omen” and its cousin the “Titanic Syndrome.” I won’t bore you with the technical details; know that we have a combined 12 triggers in a few days. It has been rare to get a cluster of such signals in the last 25 years. Historically, medium-term returns that have followed such signals have been, shall we say, challenging?

Swing Traders

Swing traders should continue to keep their powder dry until our Navigator Algorithm conjures up a buy signal.

Day Traders – Key Levels

Day traders had nearly a perfect roadmap yesterday, though we never quite reached our initial turn target in the morning. The day was strong for the Monsters of Tech, which helped carry the NASDAQ 100 and S&P 500 indices higher.

In a perfect world, that might have been a good thing. But this is not an ideal market. Other indices, such as the Dow and Russell 2000, were anemic. So the broad market continues to diverge from their big-cap brethren. We need more to turn the tape around.

Day traders should be aware of the monthly open for November at 4608. The monthly candle turns red below that level, and we tagged 4608 again overnight. Other than that, know that Friday’s low was 4577.25, yesterday’s low was 4588.75, and last night’s low was 4582 – smack in the middle.

On a positive note, the overnight sellers lost traction at 4582, and we are trading around overnight halfback at the open. On a negative note, this is the last day of the month, and we might trade around 4608 as bulls and bears battle it out for the candle color.

Also, note that we have a true gap lower and gap rules apply this morning. Start there as there is significant M.G.I. associated with how the market handles this gap.

Use Friday’s low at 4577.25 as your line in the sand today. Recall that the 50-day line is the next signpost below that at 4529 for a first downside target. We can stay optimistic above Friday’s low and preferably above 4600 and 4608.

Target yesterday’s high at 4669.75 for the bullish case. But remember that we need to get through the 21-day line (mean) at 4641 first to truly turn the tape bullish again and have a chance at taking the 4669.75 level.

While noting all of the specific numbers above, watch your downtrend and uptrend lines as they often interfere with hitting exact targets. Remember, we might be in a trading range or triangle for a few days before the market resolves anything. Also, this is the last trading day of the month, which can lead to some anomalous trading as institutions adjust their portfolios.

A.F. Thornton

As always, all market references below are to the S&P 500 Index Continuous Futures Contract, 24-hour session.

The Deep State Davos dictators, Joseph Goebbels–trained media conglomerates, and Silicon Valley techno-fascists ran a trick/trap operation last week because they had lost control of the narrative. Courts overturned, and companies reversed mandatory vaccine policies. OSHA had to abandon its compulsory vaccine rules. President Brandon’s approval numbers had dropped below those of any modern President. Build Back Bankrupt was struggling to pass the Senate. The crowd was no longer buying less freedom and more government.

The Brandon junta had to rejuvenate fears and shift blame. Voila – the Davos crowd dropped another of (many more to come) Covid variants on the Thanksgiving table while families were gathered around to stoke the fire, and the financial markets were vulnerable to potentially light volume and a half trading day. Anything to keep the little people off-balance. Keep in mind that the mild Omicron variant had been around for two weeks. Yet, the W.H.O. had to inject the “emergency” into the news cycle on Thanksgiving evening?

There are no coincidences. The insiders made a fortune on this market operation last Friday. But the damage has been done. We have to determine if this morning is a dead cat bounce or if the animal is merely wounded. By the way, what is the new narrative? The new (but milder) Covid variant might be “vaccine-resistant.” Really?

The hard data shows that all of Covid is vaccine-resistant. Anyone paying attention knows the vaccines have become practically useless on the core virus and its variants. Running a scam like this would put most of us in jail – not on Billionaires Row.

Emerging evidence also shows the vaccinated may be worse off than the unvaccinated when all is said and done. Two years of this psychological operation to introduce Totalitarian Rule is more than enough. We are all sick and tired of it – and we are tired of Komsomol Fauci too.

Rejecting the latest Covid lies, savvy stock market participants have been buying all night, and the market is recovering significantly this morning. Already, the market managed an orthodox gap open in Globex and climbed up to the bottom of Friday’s gap down at 4642.75, now the Globex high.

All told, the market has already recovered a little less than half of the decline from the new, all-time high at 4740 achieved about a week ago. For now, we have to assume that a lot of this overnight buying is short-covering. Whether or not genuine buyers are at hand remains to be seen in the next few sessions.

The “One Thing” has shifted from bonds and interest rates to oil. Oil nearly collapsed last week, falling to $67 a barrel from $85 in late October. That could indicate that the recovering economy will sputter, and inflationary pressures will decrease. Oil is now THE barometer of economic recovery.

Do you remember April 2020? The price of oil futures dropped below zero. Falling oil prices, along with falling interest rates, may reinvigorate the stay-at-home trade and NASDAQ 100 index as commodities and financials wane again. It is too early to tell – but I would still keep an eye on the DBC, IWM, DIA, and XLF, though I believe that oil’s collapse is a game-changer. Watch sector fund flows carefully this week for clues.

Swing traders need to warm up their “Enter” keys here and stay alert for my signal. There is no draconian downdraft or major cycle due now. We were declining into the nominal 80-day cycle trough when this operation hit.

Over a month ago, I had already pointed out that we needed to expect some late November weakness into this trough. We now transition into the last few days of the current month and the first few days of the new month. These days are primarily bullish for 401(k) payroll cash flows into the market. The Santa Claus rally is also on the docket in early December.

If anything, a trading range could finally be upon us. But before making too many judgments, I want to see how the market navigates this retracement of the recent decline in the next few sessions. The Navigator Algorithm kept Swing Traders out of this decline, so let’s allow it to bring us back in at the appropriate time.

Day traders should first be aware that the short-term bias has shifted to bearish as long as we stay below the 21-day line at 4642.75. Also, the expected move (at double recent levels) anticipates a lot of volatility for this coming week. This coming Friday’s expiration contemplates a 135 point move in either direction from last Friday’s close.

Also, keep an eye on the November monthly candle open at 4608.25. Falling below this level will accelerate any decline. The level will dictate whether November’s candle is green or red, asserting some influence on December’s prospects and whether or not another new high can be achieved before year-end. A red candle would indicate that the breakout from the September/October outside, outside pattern is failing.

We are otherwise in a period of seasonal strength, and day traders should be looking for market-generated information for guidance. Sellers lost hope of lower prices from the gap open last night, so they are currently on the ropes.

On the upside, how far can we invade Friday’s gap-down today? On the downside, how far do we invade this morning’s orthodox gap higher?

Friday’s gap down starts at 4643.25, but overnight trading found resistance just below at 4642.75, now the Globex high and also the 21-day line and mean. These are vital levels to overcome if Friday’s decline was a one-off, news-driven event. Mark this morning’s open for the top of today’s gap higher.

Again on the upside, conquering 4650 for at least a few hours (as a half-roundie and the five-day line) is bullish and puts the Navigator on a buy-alert status. It is a lot to ask the market to take these levels out today, as Friday did severe psychological damage. Also, it is not unusual to see a retest of Friday’s low about a week out – though most lows since last year have been “V” reversals.

Cutting to the chase, I will stay optimistic above the overnight halfback at 4615.75. Overnight inventory is 100% long, most short-sellers have covered, and there is a 70% chance of a fade at the open. If there is no fade, assume an initial, bullish bias but expect strong resistance around 4650, and then on to a complete gap fill up to 4700.

On any opening fade or a reversal from 4650, I will be looking to go long at the overnight halfback at 4615.75. Looking doesn’t mean doing – it is where I will look for confirmation of a turn. Below 4615.75, my next “look” will be at the Globex low of 4688.75. But even before that level, short positions become more attractive if we fall through the November candle open at 4608.25.

I will have more later and an important announcement about the new, live trading room officially launching on December 1st.

Good luck today.

A.F. Thornton