All posts by AF Thornton

We have a quadruple expiration day on hand today, and it is not usually wise to day trade. We also have a looming Chinese economic meltdown, rumblings of World War III, the military general-led coup we recently discovered here at home, and a relentlessly stubborn bioweapon scamdemic still on tap. Other than that, all is well.

What should we do? Buy, buy, and buy more!

In all seriousness, we have a four-day balance area bounded to the north by 4483.50 and south at 4425.25. Perhaps not today, but we need to go with the break-out in either direction and target double the range. Of course, we will watch for the fakeout.

I will have more to say over the weekend, but it has paid to buy the dip once we have concluded the dip is ending. Lately, it has been ending with monthly options expiration. Today, we get weekly, monthly, and quarterly with both options and futures. Maybe that makes a difference, and maybe not.

Pull out your Balance Rules and use them on either end of the range. Otherwise, use responsive trading to day trade the range if you are inclined to trade today. Plot a VWAP or use a Volume Profile for responsive trading. You might even merge the four days in a volume profile on a separate screen.

Have a great weekend.

A.F. Thornton

The action today is a bit more bullish than bearish. Traders tested both ends of yesterday’s range, but the turn at the low came higher than yesterday’s low, so that gives a small hat tip to the bulls. The chart has some volatility to it, but the bottom is rounded.

There have been some nice trades in the trips back and forth today – but the trend remains sideways until it isn’t. Essentially, yesterday and today are almost inside days from Tuesday (depending on whether you are looking at cash or futures), so it amounts to a trading range.

In our ongoing Chinese saga, the Australians just canceled their order for French submarines in favor of U.S. nuclear subs. This will be the second country we have allowed to have these subs – so it is a rarity. Great Britain was the first. Understandably, President Macron is furious in France, but it underscores the rising tensions over Taiwan in the region.

We need to keep a close eye on the Taiwan issues, and perhaps Ukraine in Russia. Our adversaries will make their move when they perceive us to be weak. The disastrous Afghanistan exit has exacerbated the risks.

A.F. Thornton

Two thoughts this morning. First, I continue to have one eye on China. Their potential real estate and debt implosion (absent a government bailout) still have the potential to disrupt the global economy. The Taiwan threat (and its potential to distract social unrest at home) looms large. Japan is now beginning to react to the China rhetoric. So far this is noise – but it could easily become signal.

My second thought is that U.S. junk bonds are doing just fine. Given that China’s debt problems have disrupted their junk bond market (yields approaching 13%), our market is not flashing any risk-off signals as yet at 3% yields. This also has me leaning toward the current market dip being resolved soon and favorably.

U.S. interest rates seem to be moving lower from their recent consolidation. That has been challenging for Energy and Financials this year, but now Energy may be leaning forward again based on the last few sessions. Financials are still basing and failed to break out last week. Bank buybacks are helping the sector.

In a sense though, the 11 S&P 500 sectors have been all over the place – with leadership in tech and new economy stocks remaining strong.

Where that leaves us this morning is that the S&P 500, our market proxy, reached the 80-day cycle line (FLD) yesterday and made a nice pivot. But while the price has achieved the minimum target, time is still left on the clock. We will know more if we get follow-through today on yesterday’s rally. Also, we need to see if we can move past the midpoint of the recent decline without another down leg.

It seems too easy that we would just continue the same pattern as the past four months. The market loves to lull us into a pattern only to morph. My best guess is that we run the clock into next week with a small rally, some sideways action, and another leg down or retest of yesterday’s low into the Fed meeting.

So conquering the 21-day line and recent highs around 4478.50 hands the ball back to the bulls. A close below 4425.25 swing low keeps the sellers in charge as they had been before yesterday’s pivot. Today, I will stay with a bull bias as long as the overnight low holds at 4462.50, also the top of the single prints. I am looking for acceptance above 4462.50 and preferably above 4478.50.

The NASDAQ 100 is stronger than the S&P 500, having held at the 21-day line while the S&P 500 nearly tagged its 50-day line yesterday. As long as interest rates behave, this relative strength will likely maintain.

U.S. Retail sales exceeded expectations this morning. That is good news for the economy. Initial jobless claims were in line with expectations. But 332,000 is still a lot of claims – especially when we are told that there are a record 10 million plus job openings out there. I am still wondering how mandatory vaccines might impact the job market.

Stay tuned,

A.F. Thornton

We are overdue for a bounce, but it is safe to assume that sellers remain in control unless we take out the ONH at 4448.50. Use caution on early trades as the open is very close to the settlement and overnight inventory is very balanced. I usually prefer to wait for the market to settle in before I trade in the circumstances.

Any movement below the RTH Low should target the 50-day line at 4413. The 50-day line should offer strong support initially, even if we are starting a larger correction. Failure to do so would potentially be a longer-term bearish signal.

My best guess is that we find support on the 50-day line, flip back higher, then put in a second leg down into the 80-day cycle low in a week. The second leg could be a double bottom but is more likely than not to take us lower to put some fear into the bulls.

Don’t forget the blow-off scenario mentioned yesterday if we make a quick move to 4600.

A.F. Thornton

You can see from this morning’s bulletins that we are having fun with the website programming.

As the market has been one time framing lower now for six RTH sessions, there is a downtrend in place and that downtrend line marks your shift to a bullish case. The line is dynamic so mark it on your charts. I would use 4460 on the December contract as the line right now – but it changes as price moves.

Another good proxy for a bullish reversal is to look for the price to come up through the 21-EMA on the hourly chart and successfully retest the line to make sure it will hold.

On the bear side, the sellers are working to break 4434.50 which continues their rare moment in the sun.

Treasuries (as measured by the TLT) seem to be breaking up out of their symmetrical triangle – portending lower rates. So the pressure may be off the Fed as far as tapering, but the greater concern is why rates are falling. Is it a flight to quality? Is it evidence that the economy is slowing? Is it a combination of both?

Fear seems too elevated to bring us a huge selloff, so I am still of the mind that this is part of the 80-day cycle trough developing. The precise due date for the low is the 22nd.

The cycle lows rarely follow the calendar as closely as we do but this corrective phase should be ending within a day or two of that target. The next big wave down is the 20-week cycle due in late November. That is where it promises to get more interesting.

Stay tuned,

A.F. Thornton

One of the global events unfolding is the implosion of China’s private real estate market and an associated debt crisis. The Chinese government may be stepping in with a rescue and bailout package similar to the U.S. in 2008. What governments typically do to maintain power when their economy is teetering is to create a diversion. Combine this fuel with the Biden Administration’s surrender to the Taliban, and you have the worst of all worlds.

China (through the CCP’s Global Times) announced yesterday that they will now be exercising sovereignty over Taiwan’s airspace, a first. As you will read from the editorial, the CCP threatens an all-out war if Taiwan shoots down China’s fighter jets.

The West is heavily dependent on Taiwan for all kinds of computer chips. As there is already a chip shortage now, we can only imagine what a conflict over Taiwan would portend. And that is not the worst of it. Suppose the U.S. and Japan do not take a firm stand. Surrendering to China could shift the balance of world power. I have little confidence in our own leaders. Make no mistake; China owns many a US politician through bribery or blackmail, or both.

Weakness invites war, as it has many times in the past. Our exit from Afghanistan weakened our position in the world considerably. Wars typically accompany Fourth Turnings. So I am monitoring events carefully.

This news will not make the mainstream news right away, as most of our illustrious media don’t read the Global Times every day.

I will expand on this news later, as I am sending this bulletin from my phone.

Stay tuned,

A.F. Thornton

The bears sold off for 5 days, which is significant compared to other pullbacks since the pandemic low. The sell-off came earlier than in recent months on the cycle. We are in an 80-day cycle markdown, so it was slated to be a bit more serious.

Next week’s FOMC announcement will be important. That increases the chance of the market starting to go sideways.
We found support yesterday at the bottom of the bull channel, which is just a few points below Friday’s low.

September or October should be the high of the year and the start of 15 to 20% correction. There is a 40% chance it has already begun.

There have been many selloffs comparable to this one since the pandemic low. The bulls bought each one, and they will probably buy this one as well.

It has been strong enough so that the bulls will probably need a micro double bottom this week before they can get back to a new high.

We might get sharp acceleration up to above 4600 before a more serious correction begins, possibly after the September 22 FOMC meeting. If so, that would probably be a blow-off top.

Yesterday’s low is now the key line in the sand. Consumer inflation came in slightly below expectations this morning, but still high by recent standards.

We are watching developments in China vis a vis Taiwan closely.

A.F. Thornton

Steady selling all week in this first business week of the fall season, together with a close below the 21-day EMA on the S&P 500 index, is cause enough for the Founders Group to return to an all-cash position, exiting all of our calls in the XLF, XHB, XLE, IWM, and QQQ. While these positions are not violating their 21-day lines, we appear to be heading into the 80-day cycle low a bit early. We are getting little, if any, lift from the 20-day dip. These other sectors are likely to join the fray, and we don’t want to wait until the last minute. We will regroup over the weekend.

AF. Thornton.

There is not much change from yesterday. The market is trying to pivot from the 21-day EMA, similar to the past few months at about a similar point in time. As a side note, don’t forget to switch to the “Z” contract today.

If the 21 holds, the market likely will make an attempt at the old highs. If not, a larger correction is underway. In any event, it is all about the Fed and Fed policy. The liquidation break yesterday was driven by Fed comments, and even the European central banks are weighing in with rollbacks.

Sentiment remains negative enough that the market could hold the 21. But there also is a negative pell over the country given the Biden speech yesterday and what it portends in terms of authoritarian overreach. It is almost laughable now that the Democrats accused Trump of being a dictator. I think they call this “projection”

The problem is that in a time of supposed labor shortages, a lot of people could refuse jobs if they are required to take this experimental vaccine in order to work. We don’t yet know the potential impact of these mandates

Stay tuned and focus on the 21-day line today as your threshold.

A.F. Thornton