All posts by AF Thornton

Founder's Trading Journal

Pre-Market Outlook – 9/9/2021

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The market is following the same path as the past several months thus far. It shoots up from the 50-day line, stalls, and then dips into the 21-day line around the 10th trading day. If the path is to continue, then we shoot up again for a few trading days into a new high, before dipping into mid-month options expiration.

So the key references today are yesterday’s low at 4492 and settlement up around 4511 or so. Acceptance and/or a close above 4511 keeps the bull case alive. A close below 4492 changes the tone considerably.

Central bank chatter both here and across the bond continues to bubble up under the surface. But the economy appears to be slowing, which takes the pressure off tapering.

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook – 9/8/2021

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I consider yesterday to be the first full business day after summer. Except for the Tech Monsters, there was quite a bit of broad-based but minor selling.

Concerning our market proxy, the S&P 500 futures, we tested the balance area low at 4410.75 yesterday and breached it overnight. But we are back into balance at this writing. So sellers did not pile in, at least overnight, giving us a WWSHD signal.

Also, when the balance area is breached and the price returns into the range, it frequently travels to the other end, which would be the all-time highs. Anyway, as this was also the down mode of the minor, 10-day cycle – nothing significant has been violated yet.

But, key levels have shifted focus to areas below the current price as any movement below yesterday’s low would be significant.  You have the overnight low at 4497, also in the realm of the roundie at 4500. The top of the single prints is at 4492. Balance Rules remain in play for the larger range (4410.75 to the all-time high). 

The concept “When What Should Happen Doesn’t” applies to today’s session.  Failure to find acceptance below 4410.75 keeps things status quo even with the overnight price exploration since we don’t “count” that towards structural repair or change.  

In the bigger picture, today puts us exactly two weeks from the next FOMC announcement.  The focus will start to shift towards that meeting gradually.  Thus far, sellers have been noticeably absent in this market, and there is no obvious catalyst that would attract them until the meeting.  Sector rotation continues to keep the overall market healthy.

A.F. Thornton

Founder's Trading Journal

Pre-Market Outlook 9/7/2031

AF Thornton 0 Comment

I am still not quite set up after a temporary cross country move, but should be fully operational later today.

Meanwhile, the market continues to climb the wall of worry. Again, I am watching both sentiment and momentum carefully. Breadth improved last week and is becoming less of a concern.

More concerning is a two-fold problem developing in China. First, they have been lying about their growth and GDP. No surprise there. I recall the old Soviet military parades. We now know that the missiles, etc. were fakes – fancy balloons.

But the Chinese commercial real estate market is teetering. Bonds of their largest real estate developer collapsed on Friday, halting the Shanghei exchange for a time. A lot of other Chinese bonds will suffer in sympathy.

These markets are like a pile of kindling. All it takes is a match to light the fire. We don’t know what the catalyst will be, but likely it will come from a quiet, unexpected corner of the world. So I am watching events carefully.

Meanwhile, stick to the balance range as your bull/bear guide. Closing above 4550 is bullish, below 4530 is bearish. The target remains 4600

More details to follow later today.

A.F. Thornton

Navigator™ Signals for Swing Traders

Interim Update

AF Thornton 0 Comment

As you know, I am on “vacation” this week, otherwise known as a cross-country move. No move is fun, and this one is no exception. I will be back in full gear next Tuesday after the Labor Day Weekend. So this is just an ever so brief note.

August finished with the 7th monthly bull bar in a row. That matches the record since the inception of the E-mini contract 25 years ago. There has never been 8, so that will make September quite the test. When these winning streaks break, we usually get 2-3 months of bear bars.

While the weekly and daily charts have tolerable angles, it is the monthly chart that has that parabolic “blow-off” look, much like 2017 did. We all know that this is courtesy of the Federal Reserve.

But we also know that what goes up, must come down eventually. So we likely have a 50% correction in our future, or some kind of wide, multi-year trading range when this party ends.
In the meantime, steady as she goes. 

The Founders Group is content with our 10% positions in September calls in each of the XLF and XHB. I will look to take profits or roll these early next week. I am also content with our 10% position in October calls in each of the QQQ, IWM, and XLE calls.

We should get our typical early month strength for a few days, and a fairly sizable dip mid-month on the 80-day cycle. We are also in seasonal weakness for stocks in September and October, but there are a number of sectors coming out of recent corrections so while I will take seasonality into account, it does not rule price.

More than anything right now, the market has been climbing the wall of worry. So it may be one of those times to pay closer attention to “worry.” Worry is neutral, at least according to the CNN Fear/Greed index. When this and other sentiment indicators tilt back towards “greed,’ we should pay close attention.

Have a great holiday weekend.

A.F. Thornton

Navigator™ Signals for Swing Traders

New Navigator Swing Buys – 8/30/2021

AF Thornton 0 Comment

The Founders Group will be taking a 10% position today in the XLE (Energy), IWM (Small Cap), and QQQ (Nasdaq 100) October 15th monthly at-the-money calls.

Energy has already been building relative strength but will be boosted by Hurricane Ida. Small caps have a good chance of finally breaking from their 6-month basing pattern after bouncing off the 200-EMA. They have already risen above the mid-point of the range.

The IWM also helps our exposure to Financials and Energy. We will have to watch the Financials for any impact on insurers from the hurricane, but the bank weightings should overcome any insurance company exposure.

We will also be taking a 10% position in the QQQ, exposing us to the FAANGMAN-T mega-caps and the NASDAQ 100. 

We will be easing into the positions all day on 5-minute chart dips.

This brings us up to 50% invested.

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook – 8/30/2021

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S&P 500 E-mini Futures - Volume / /Market Profile (Globex Profile in Blue)

First, let me alert you that this will be the only Pre-Market Outlook this week. The wife and I are packing to head to California for a few months before permanently returning to Europe. 

Look, I have used every excuse I can come up with to get out of helping with the packing and moving. I feigned doctors’ appointments, errands, market commentary to write – anything and everything to avoid packing. I am such a good husband; I even offered to fly ahead to sweep and get the house ready! 

But alas, I have run out of excuses. So, packing and driving are all I am doing for the next few days—happy wife – happy life.

These commentaries will resume on Tuesday after Labor Day weekend. Obviously, I will communicate any material issues or changes in strategy.

Also, I am excited to say that the programmers will finally have the new website features, including the live trading room, turned on by then. The programmers need this downtime to get everything ready now that the beta testing is over. 

We are approaching a six-figure investment and nearly six months of work in all this infrastructure, so I am looking forward to making it operational. At times, it has seemed like a bottomless pit of expense and frustration.

Today’s Plan

I am sure nobody is happy to see a hurricane this week except President Biden. It takes Afghanistan off the front pages, at least for a time. But the only news that matters to traders right now is Friday’s commentary from the Fed. Bottom line – the music will play on a while longer.

I have eyes on the IWM, XHB, XLE, SPY, and QQQ for opportunities. Health care (XLV) remains an opportunity on dips. Even better, keep an eye on Biotech (IBB). Also, look at the top 10 holdings in each of these ETFs for stocks. The patterns often mimic the ETF. Usually, half or more of the cap weighting of the ETFs are in the top 10 holdings. You can trade these just as easily as futures if you are careful with weekly or monthly options. More on this when I return.

Back to our core trading vehicle, the E-Mini, we could open a small, true gap higher so Gap Rules may apply. You can see from the profile chart above that the overnight profile is symmetrical and balanced, though we tagged new, all-time highs. Overnight traders are net-long, so there should be a gap fill or small profit-taking dip on the open. If not, that is important M.G.I.

Always remember, on a major Fed day like Friday, the initial gains are short-covering. Nevertheless, we will look to buy dips on the intraday charts. But what we really want to see is acceptance of these new prices and follow-through. Overnight traders were unable to drive prices much into Friday’s range, making it appear that there are not too many sellers present here yet.

Maintaining prices (acceptance) this morning above Friday’s regular session high at 4410 would be extremely bullish. If we need to digest Friday’s gains, I could tolerate a dip down to Friday’s halfback at 4492, where the “emotional” single prints begin. 

A good long trade presents when the market rises back up through the open, preferably after a slight dip. I would be surprised to get as low as 4492, but it could change the tone if traders cannot maintain that level.

Having now conquered the roundie at 4400, the round number should provide support and coincidentally is close to the Globex low at 4401. If the trend is strong today, you could hold a buy around 4400 until lunch.

Monitor internals to help predict the probability of a trend day.

Good luck this week; it tends to be a slow volume week as most of Wall Street is spending their last week of vacation in the Hamptons – except me.

A.F. Thornton

Founder's Trading Journal

View from the Top Down 8/30/2021

AF Thornton 0 Comment

You may be wondering why I don’t rename the family office to Schism Quantitative Strategies. First, I rattle off about “Everything Bubbles,” then I put 10% each in XLF (Financials) and XLB (Homebuilders)?

Well, we can be in a bubble (and likely will be for a bit longer), and we can find opportunities until it pops. So both can be true at the same time. What we know for now is that Fed Chairman Powell threw more fuel on the bubbling fire on Friday, just as I suspected he would. 

We are more than likely starting another leg up in this market, bolstered by all the Fed cocaine in the pipeline. So the patient lives to fight another day – with no liquidity “withdrawal” yet. Vigilance and stops are the keys to any further participation. 

Having owned a bank, I know exactly what the Fed is doing. In a nutshell, the Fed will begin tapering sometime late this year or early 2022. To keep interest rates down in light of the inflation the Fed is feeding, and given that there is no “real” demand for U.S. treasuries, the Fed is reopening the “repurchase” window, as they slow the “reverse repurchase” window. 

So the U.S. Government will pay 25 basis points on a new treasury. The banks will buy them. Then, to get the cash they need, the banks will pledge the treasuries to the Fed every night for overnight loans, and the Fed will charge 5 basis points for the loan. The banks get the cash they need and are guaranteed a 20 basis point profit. That is how they will create artificial demand for treasuries, thereby keeping interest rates artificially low. This will cushion the tapering.

Keep in mind that the Japanese and Chinese are no longer buying our treasuries in any material quantities. The Russians long ago sold all of their US Treasury positions. So the Fed is buying most of the new treasuries (a legal Ponzi scheme). The new repurchase window is how the Fed will incentivize our own banks and a few friendly central banks to keep buying. So the bond market parties on, for now, as long as this new scheme works. But in the circumstances, don’t expect inflation to stop soon. My skeptical mind believes that the government does not want the inflation to stop anyway, as they monetize the debt on the back of American workers.

Small caps (IWM) breaking out of their six-month base would bolster my confidence in this new leg. I have a close eye on them and would like to take a 10% position. Junk bonds are already confirming the new leg after sputtering recently. Breadth should improve as well, and if it doesn’t, that will be a contrary indicator.

Respecting the S&P 500, our core index, I am looking for that trip to what I am calling the “Armageddon” high of 4600 on the cash index. This is tongue-in-cheek because I cannot come up with any other projection higher. I am just not sure how we get there.

We could slowly climb the current channel or break above it and move right to the target. But that is my best calculation of where we are headed for now.

While we should have a bit more of an attention-getter dip in mid-October, the most significant downward pressure comes in the third week of November on the next 20-week cycle low.

That could be a retest of an October low, or the market could dip even lower into a new trough. So the window between now and then is short. The chart above shows the interaction of the cycles.

I am out for this entire week. So unless there is a new buy or sell signal, this will be my last commentary until after the Labor Day weekend.

A.F. Thornton

Navigator™ Signals for Swing Traders

New Swing Buys

AF Thornton 0 Comment

The Founders Group has just taken long positions in the XLF (Financial Sector ETF) and XHB (Homebuilders ETF). We are targeting 10% each. You can buy outright for cash. Or you can use options. We have focused on the September 17th at the money calls. See my previous discussion on these two sectors. They are breaking above Cup and Handle Patterns. The XLF entry price was 38.60 and the XHB entry price was 79.55.

As always, do your own homework.

A.F. Thornton

Navigator™ Signals for Day Traders Navigator™ Signals for Swing Traders

The Fix is In…

AF Thornton 0 Comment

Can I call it or what? No change in Fed policy. No worries – inflation is transitory! Now, does it have anything to do with President Harris getting to appoint a new Fed Chairman in January? Chair Powell will keep his job – no doubt. The fix is in.

Inflation is the most insidious tax of all. Ordinary Americans are suffering now, and they will suffer more in the coming months. But it is the only way out for this government and the Fed. They are trapped.

Armageddon watch? Let’s call this day one.

More later.

A.F. Thornton

Founder's Trading Journal

Pre-Market Outlook – 8/27/2021

AF Thornton 0 Comment

It is another Fed day. We await Chair Powell’s remarks at 10:00 am EST – the Jackson Hole virtual conference epitaph. Why not Paris? Why not London? Why Jackson Hole? After all, in the virtual world, you can travel anywhere without a vaccine passport. At least for now.

And we are in the midst of the nominal 10-day wave markdown. I don’t talk about that cycle much; it has been largely invisible in the raging bull market. But when the market starts to care about anything, it shows up. But it barely lasts a day or two.

Use yesterday’s RTH candle as your new trading range. Opening above and staying above yesterday’s RTH low at 4465 and the Navigator Trigger line and 5-day line on the daily chart are key to maintaining the bull case.

After that, target the halfway point at 4478.50 as your bias threshold for the day. Closing 30-min candles above it is bullish, and closing them below is bearish – at least for the intraday period.

Pushing above yesterday’s candle high at 4492 opens the door to the all-time high at 4498. Then, in only these blessed and temporary times, we move towards the current Armageddon high at 4600.

Closing candles below yesterday’s low at 4465 opens the door to the top of the gap around 4450, then the bottom of the gap around 4440. I will leave it to your imagination from there.

Yesterday’s epilogue and a few more comments will follow my morning misery sacrifice listening to Fed speak. I will be your translator.

Fridays can be good days, but the S&P 500 is pushing its Weekly Expected Move high at the all-time-high of 4498. So in the best of forecasts today, they will leave us hanging for another weekend.

Good luck today – we will need it.

A.F. Thornton

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