All posts by AF Thornton

The market is finally taking a bit of a breather from the morning rip-your-face-off short-covering rally. It just shot up at the open and stalled as predicted. This is often the case with large gaps, followed by late afternoon profit-taking by the daytime crowd.

As to establishing a swing position, I will see how things look right before the close. We may test the top of the gap, also the 21-day line on the RTH data around 4388. That would be a good place to begin establishing a swing position if we get a nice pivot.

For now, I am treating the Navigator Algo signal as a buy signal but still looking to cautiously establish a swing position on pullbacks and at key levels. I am targeting 10% November monthly SPY at-the-money calls if the pivot materializes.

The Navigator Algorithm can give us the signal, but it cannot predict the run. We have to use our other work to help us with targets and determine whether this is merely a run-up to the top of the down-channel or a true trend reversal. The jury is still out on that score.

A.F. Thornton

Sometimes the overnight markets frustrate me (unless I am in Europe and can get one up on the U.S.). I feel a bit robbed by our Globex cousins this morning, but we are opening with a Navigator algorithm buy signal nonetheless if the market does not immediately reverse. It is usually best to give the market a few hours to confirm the signal when taking the cue before the close. With the large gap higher this morning, it may be difficult to find a good entry point today unless you are willing to ride some volatility in your position over the next few days before profits materialize.

The opening will be a true gap higher, launched from a successful retest of recent lows. Gap rules will apply. It is very positive that we are rising out of a cyclical inflection point in the midst of very negative sentiment and opening above the weekly and daily means. At the same time, we are slammed right up against the downtrend line, making this a tricky buy point, with an initial measured move target of 4460. That is only 50 points higher from here IF that will be the end of the rally.

In the recent past, the market has moved right to the target with short-covering and FOMO. It might still do that, but the character of the market has changed. For example, this is the first time the target has fallen short of the old highs in the past year. My expectation continues to be that this move will form the top of a trading range even if it tags the old high.

We will take a 50% position in the S&P 500 using dips on the hourly charts. In a large gap higher like this today, the market will typically stall in a tight trading range all day, so new positions may require patience to find our entry points, and I will keep you posted.

Initial targets should be the overnight high at 4397.75, then the bottom of the gap at 4406.25, and finally the top of the gap at 4425. As mentioned above, the measured move target is 4460, and then there are about 100 points from there to the old highs.

Stay tuned.

A.F. Thornton

S&P 500 Futures – ETH Data

The market (as measured by our S&P 500 index proxy) has been battling to hold the weekly mean and managed to close above it today. I like the current negative sentiment and its interplay with the projected 80-day cycle low. In other words, there is a good context for an intermediate low.

There will always be a negative correlation between confirmation of an intermediate low and our returns. The more confirmation we have that the low is in place, the further we will typically be from the low when we enter. The further we enter away from the low, the greater the risk of a reversal to retest the break higher when we enter. If we are wrong about the low, the further away we enter also exacerbates the loss to our stop. Always bear these issues in mind.

Today’s close leaves price in the familiar teetering position. It not only sits at the weekly mean, but the price also approximates the August monthly low and the highs of the last few trading sessions. So this location is resistant, and I will need to see some upside follow-through to issue a buy signal coincident with a green Navigator Algo arrow. Nevertheless, the price action is encouraging today as was the strong close.

Keep in mind; I am not predicting or expecting the market to move up to new highs. A trading range is the most likely outcome from the break of the 60-week bull microchannel. At the very least, a move up to the top of the down trend line is possible. We will need to see the market eventually conquer that line as well, but first things first.

Risks abound, as they always do. China and a grab for Taiwan remain my biggest concern. But would they do that before they host the Winter Olympics in February? There is no way to quantify such black swan events except to keep your downside guarded should we issue a buy signal tomorrow.

Consider this your heads up, but we have come close to buy signals several times since we went to cash on September 10th. Though we came close, the signals never manifested completely.

Stay tuned,

A.F. Thornton

From the perspective of the 24-hour S&P 500 Futures contract, we are approaching our third inside day (if the overnight action is to be considered). This is a converging triangle type of consolidation. It also becomes a trading range framed by 4260 on the low end and 4365.75 above.

It also becomes apparent that the short-term momentum crowd is at the table, and the institutions are in more of a wait-and-see position.

The overnight session has erased yesterday’s gains and then some, trading just a few points below the RTH Low at this moment. The gap is true if we open out of range, and gap rules will be in play.

Coming back into range today (should it occur) will be interesting as there are 30 handles of single prints from the RTH Low to where value begins. Assume less resistance in this area of the distribution.

Overnight inventory is very close to 100% net short this morning which should also factor into your assessment of how the open will react. Although the gap is large, we are also quite far away from the ONL, which simply means that the imbalance at open is not nearly as great as it potentially could be were we trading closer to the ONL.

Work from the framework that any activity inside of the RTH range in early trade can bring on strong short covering. Monitor for continuation.

Holding below the RTH range is far less bullish, with the caveat that we remain within the multi-day trading range unless the 4260 swing low is taken out.

A.F. Thornton

Looking at the intermediate trend, the broad market (as measured by the S&P 500 Index) is still trying to find its footing at a double bottom around 4300. There are definitely buyers between 4250 and 4300, as we have seen for two sessions and overnight. But the trend remains down, and the Navigator Algorithms remain in cash, eluding several very close, potential buy signals. We continue to operate on the assumption that the market is in the process of establishing a trading range for the next several months.

For day traders, keep the intermediate trend in mind. While the S&P 500 held its recent lows yesterday, tech and the NASDAQ 100 put in new lows. Part of the decline was due to Facebook’s precipitous decline in the wake of what appears to be a CIA-type psyops game run against them. I am reminded about what China did to Jack Ma and Alibaba.

Our intelligence apparatus is likely trying to show Zuck who is really in charge. A whistleblower (attempting to enhance the left’s desired dissent censoring programs) combined with a mysterious global outage for all of Zuck’s apps is hardly coincidental. In the apparent leftist coup attempt underway in our country, Facebook needs to snap to it or face the consequences.

Zuck will learn that it is treacherous to deal with the devil. Just because you help the leftists take over does not mean they won’t eat you when your usefulness wains.

For day trading today, continue to focus on the swing low around 4260 as both the gateway to lower prices and a short-covering trigger. If sellers cannot move the market sustainably below 4260, the shorts will have to cover, and that may be all that traders will need to begin moving the markets back up the down channel for now. If we take out the overnight high at 4314.75 with some follow-through, the market can begin to repair yesterday’s single prints, and I become more bullish.

The situation between China and Taiwan bears monitoring. It remains both a wildcard and a hotspot. Your downside needs to be guarded and measurable if you are long. So many of our computer chips come from Taiwan that any conflict will devastate the financial markets.

The Navigator Algorithms remain in their cash position established on October 10th, and that remains our official swing trading position. I will, however, admit to personally nibbling in some of the downswings, but I don’t have much green to show for it quite yet.

A.F. Thornton

Friday’s short-covering rally left a trail of single prints – indicating a lot of emotional trading. The overnight activity is within the value area, which tells us there was no price exploration in the overnight session. Today’s activity will tell us a lot about future direction as we see if any longer-term buyers are spurred to action. The trend is still down until the Navigator Algo line triggers a buy, breaking the downtrend line.

The higher odds trades will probably develop later rather than earlier in this session. Watch the ends of the single prints at 4338 and 4329.75 as potential inflection points for trades. They often act as support or resistance. Assume a more bullish stance should price hold in the upper distribution (above 4338) and more bearish should they hold in the lower (below 4329.75).

A.F. Thornton

There are four keys to the current bull market kingdom. The first key is Fed policy. The second is interest rates (a derivative of Fed policy assuming the Fed does not lose control of the bond market). The third is earnings (currently threatened by labor shortages, supply chain and transportation problems, inflation, and a potential economic contraction). The fourth and final key is global stability (currently threatened by Chinese military incursions into Taiwan).

The pressure is off the Fed to taper and/or raise rates due to the current stock market correction and economic contraction. But a disturbing, intermediate reversal pattern continues to develop on the 10-year treasury rate chart, and we need to monitor this pattern carefully. The developing pattern could reflect higher inflation expectations and portend a return to 2018 interest rate levels (double what rates are now).

Both inflation and China remain wildcards. As to earnings, strap in as third-quarter earnings – AND FORWARD GUIDANCE – are about to get underway. At least with September’s reversal of August’s stock market gains, the frosting is off the cake, and that is likely a good thing for the short term.

We successfully retested the September 20th low on Friday on short-term fear extremes. Thus the probabilities favor the 80-day cycle low is in place. Also, we were bumping up against the Navigator Algo buy trigger line at Friday’s close, and I will notify readers if it triggers today.

Amazingly, and as deep as the correction went Thursday night, market makers brought the market all the way back to the Weekly Expected Move low by Friday’s close. It is always important to monitor the expected move high and low each week. Knowing the level allowed me to ride a nice trade into the close from the depths of the early morning lows. I honestly expected the trade to fail, but that is why our algorithms are more important than my opinions.

All references to the stock market below use the S&P 500 index futures as the proxy.

The Monthly Chart

On the monthly Emini chart, September’s candlestick was a bear outside down bar closing near its low and below the August low. This is bearish, but the bull trend is strong. Traders will typically buy the first intermediate pullback and retest the high before resuming two to three months of sideways to down trading. The bar after an outside bar typically has a lot of overlap with the outside bar, so we do expect October’s price action to invade September’s candle to some extent, perhaps even retesting the September high. The probabilities do not favor new highs.

The Weekly Chart

The stock market has been in a small pullback bull trend for more than 60 bars (weeks) which is unusual, unsustainable, and climactic. But traders know that most reversal attempts in a strong bull trend are minor. That means they become either bull flags or the start of a trading range. Since this rally has been so extreme, a trading range for ten or more weeks is likely underway which should end in late November on the next major cycle low. Even if there is a marginal, new, all-time high in the next few months, traders should not expect a resumption of the bull trend until at least December.

Friday’s Action

Friday had a big bull body after breaking below the September 20th low. The bulls hope this 2nd reversal up from the 89-day EMA line will resumption the bull trend. They see this as a lower low, double bottom with the September 20 low.

But Friday had a big tail on top, and the September 23rd high is still a credible lower high trend reversal. It could also be the right shoulder of a head and shoulders top. Today, traders will be deciding if the 89-day line and support are more important than the 50-day line and resistance. As mentioned above, even on the daily chart, It is typical for a market to enter a trading range once it has a big reversal down from a buy climax.

Always remember that big up and down bars reflect directional confusion. It is that very confusion that typically results in a trading range. On close examination, the daily chart has essentially been consolidating since July. Traders are deciding if the September selloff is just a bear-leg in the trading range or the start of a bear trend.

A bear trend has a series of lower highs and lows. The bears need to do more before traders believe that the market is in a bear trend. When the chart is this unclear, the probability is usually about 50/50 for the bulls and bears, far from the “crash” talk prevailing on YouTube and other financial, social media. Traders need to see a strong break below Friday’s low or above the September 23 lower high before believing that the trading range is becoming a trend.

As always, stay tuned.

A.F. Thornton

We closed out September yesterday with the break I have been predicting in the near historic winning streak on the monthly charts. In fact, September entirely reversed August’s gains leaving a key reversal on the charts. But all my prediction means is that I was finally right just like a broken clock that is right twice a day.

We closed just slightly above a retest of the 9/20 swing low. They took it down another 30 points overnight but brought it back. Were it not for the overnight action, the cash chart simply looks like we will finish testing the low this morning and go from there. Lately though, the daytime crowd has shown no respect for the overnight team. My fear is that the bears are making too much money to quit now. In any case, a rip your face off short-covering rally is due soon and may have already started.

My dilemma is threefold. First, is this truly the bottom of the 80-day cycle? If so, we should move higher from here to establish the top of a trading range. If not, what are we experiencing? Is the 18-month cycle still in our windshield and the markdown just started? Did the 80-week cycle bottom on 9/20 only to peak early giving us left translation in the wave, as further evidence of a late arrival of the 18th-month cycle? Is all of this just political volatility around Congressional infighting and Fed Chairman Powell testimony?

Let’s see if the small gap higher attracts early sellers or not and assume potential for short covering with a first target of the Globex high at 4320, with an ultimate target at yesterday’s halfback at 4333. Monitor for continuation very closely.

If we are to head lower, the opening drive will move lower almost immediately which would tell us that sellers are VERY firmly in control and are not interested in covering at all, which also would be confirmed by a retracement back down through the open which would be a short. Given the sentiment out there, the cross down through yesterday’s RTH low at 4293.75 could also be an entry or level where earlier shorts can add to their position.

Again, monitor for continuation very closely. It goes without saying that the Navigator Algo has not rendered a buy signal yet.

A.F. Thornton

The good news is that the market is nervous about any number of monsters under the bed. There is the real estate meltdown in China, a spike in interest rates, Bidenflation, mandatory vaccine-induced labor shortages, artificial fights over the debt ceiling in Congress, and the like. But rather than follow-through to the downside yesterday, the market balanced as we anticipated.

We don’t get to hide under the covers, so we have to work our way to the closet and open the door, just in case another monster is in there. Our mission is to go where others fear to tread.

The market already knows about the monsters mentioned above – but is being indecisive. Are we pausing to go lower? Are we putting the finishing touches on the 80-day cycle low? We don’t have to know quite yet, but I still slightly favor the latter over the former.

Last night, the market pushed higher right into our buy trigger, but we came back into the two-day range at this writing. Value was overlapping to higher yesterday, and the low was weak as it touched down very close to a volume POC and an overnight low. Carry the low (4344.25) forward as your long/short threshold this morning.

Conquering the overnight high at 4389 with follow-through and acceptance trips the Navigator Algorithm buy signal, but wait for my confirming alert. We would need a couple of hours above the level to convince me.

Then, I would love to see the market conquer the bottom of the gap at 4406.25 to do the happy dance. If we breach the lower threshold, look for a move right to the swing low at 4293.75, and then we will see what happens. Traders have accumulated a lot of short positions, so watch for the bear trap and short-covering rip higher.

I don’t know how they do it, but the market-makers are keeping the market up and around the WEM low at 4472.75 for tomorrow’s weekly options expiration, but the level has acted as resistance thus far.

It’s the last trading day of the month and quarter. That could easily add to the indecisive action.

A.F. Thornton

Yesterday was a bloodbath of a retest, and the Founder’s Group took the opportunity to nibble on a 5% position in each of the QQQ and SPY. Both positions are in the green this morning thus far.

It is a bit tricky for an options strategy as the implied volatility is high for pure calls. If volatility abates, the implied volatility crush can subtract from otherwise positive returns. I will discuss that complication later today. This outlook is already a bit late this morning due to a technical glitch, so I would rather expand on the concepts later.

Although we are opening in balance, sentiment has shifted to bearish, and longs who are still stuck may see the small gap higher as a gift that decreases their losses.

I will use the ONH/Bottom of the Single Prints/Weekly Expected Move Low at 4372.50 and the ONL at 4344 as signposts for potential larger change. Should prices stay within these boundaries, then the market is balancing.

At the upper reference is potential for short-covering and below emboldens sellers and should attract new ones. If so, the swing low at 4293.75 is the ultimate target.

If we move decisively above 4372.50, a successful retest on the 80-day cycle could be finished, and we might begin a new move higher to challenge the old highs.

The sentiment is so negative at this point that I would bet on higher rather than lower prices. But with tomorrow being the end of the calendar quarter, window dressing by money managers may complicate matters over the next 24 hours.

The Navigator swing strategy remains 100% cash as we have yet to achieve an Algorithm buy signal.

A.F. Thornton