All posts by AF Thornton

Navigator™ Signals for Day Traders

Interim Update – 6/19/2021

AF Thornton 0 Comment

With the put/call ratio as high as it is and some poorly positioned shorts, we may have just put in the low of the day when traders traded only 88 contracts at 4324. Ticks and momentum both positively diverged. Whether it is the LOD or not, we should be getting close.

As the afternoon drive tees up at 2:00 pm EST, I believe there will be a short squeeze. If not then, it likely will come nearer to the close. I want to alert you just in case. 

If you are short, don’t be too greedy and book some profits here. If you want to take a long position to ride the short squeeze, you should be on alert as we are wedging into a turn at or near current levels.

The internals are brutal today – so this is definitely not the garden variety minor low we have been experiencing. Today likely begins the correction, it does not end it.

A.F. Thornton

Navigator™ Signals for Day Traders

Mid-Day Update – 7/19/2021

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The S&P 500 is unquestionably short-term oversold, with the CBOE put/call ratio spiking to levels associated with a short-term low. The CNN Fear/Greed Index dropped down as low as 18 this morning, again showing extreme fear. The S&P 500 futures found initial support at the 50-day line, with the NASDAQ 100 finding support at its 21-day line. The low is untested at this point, and does not look like a “V” bottom.

I am following the lines of demarcation (FLDs) on the cycles using the daily chart.  We have now broken the nominal 20 and 40-day FLD lines, in sort of a cascading effect indicating the distinct possibility that we finally have our 18-month cycle peak. The bounce so far this morning looks sloppy and choppy, so a retest might very well happen before we can be assured that a short-term low is in place. 

Below the 50-day line, we have a trendline connecting the May, June, and July lows. That sits just above 4200 and could provide some support on further weakness. Don’t forget that we have the 200-day line just below 4000, as another target for a 10% correction. Typically, it takes some zigs and zags to get that far, if it happens at all.

All of this is normal and I am not prepared to get too negative, beyond what we would expect for an 18-month cycle low. Instead, I will let the price unfold and tell me what to do next. I am going to sit out the rest of the day. I have not found a good trade in the day session yet, though I will continue to check in to look for a potential double bottom or similar turn.

Likely, the next move would be a rally in the S&P 500 index futures back up to test the 21-day line, which may now become resistance in an intermediate down trend. That would be a fabulous short, should it present.

Stay tuned,

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook – 7/19/2021

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Due to time constraints, this will be an abbreviated version which I will supplement later this morning. Make sure you have the CBOE put/call ratio up somewhere on your screens – as the shorts will run for cover at some point in a squeeze. The ratio is at the high end of the pandemic range. Also, review “View from the Top” published this morning.

This large gap will cause an increase in volatility which opens the door to higher volatility options trades. This same volatility also makes day trading more lucrative than usual as the setups are the same, but stocks travel further and faster.

Gap rules are in play, to put it mildly. Overnight inventory is close enough to 100% net short. We have lots of market profile levels around where we will open and just below. Focus on the prominent VPOC’s at 4256.25 and 4239 and the GAP top and bottom at 4251.25 and 4246.25. The overnight halfback could also be a key pivot point at 4292. Take all of the levels in order – looking for pivots, as well as acceptance above or below. Always remember that the market likes the ’50 point increments, so all the points congregating around 4250 could likely provide the initial support in this decline.

Focus also on bigger picture dynamics today. This overnight move has futures trading well below the 21-day line on the S&P 500 (4200) and to a lesser degree on the Nasdaq 100 (14545) as well. This is noteworthy for both futures. In the S&P 500, there is potential to trade to the 50 (about 4230), while in the NASDAQ 100, it’s quite a bit further away (currently at 14017). When volatility gets elevated, your focus should shift away from more nuanced/granular levels and more towards the larger signposts that everyone trades on the daily charts.

As with any large, true gap, the potential for an early fade is there. Early failure to take out the ONL can be a signal. Aggressive traders can also buy the high of the first one-minute bar or repurchase the cross through the open should the opening drive be lower. Monitor for continuation and target overnight halfback first. Be very familiar with gap rules #2 and #4.

Any continuation lower (trending day) obviously needs acceptance below the ONL first. Internals will be important to note. Downside follow-through is often accompanied by a lack of positive ticks for the better part of the first hour.

If I haven’t stressed it enough, don’t assume you need to catch anything early on these days. Large gaps are the hardest type of day to trade early, as all moves are against the backdrop of how much the market has already moved overnight. It’s hard to trend early on top of that.

Good luck today.

A.F. Thornton

Founder's Trading Journal

View from the Top Down – 7/19/2021

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In this Weekly Series, We Examine the Market From a Big Picture, Swing Trading Perspective. We Use the S&P 500 Index as our Broad Market Proxy, and All References to the Market Refer to the S&P 500 Index Unless Otherwise Noted. The Market Remains the Most Significant Variable in Higher or Lower Stock Prices, Influencing 60% to 70% of Individual Stock Price Movement. The Decision to Be Long or Short Based on the General Market’s Direction is One of the Most Important Decisions Investors Will Undertake.

Bottom Line

We tripped the stop on our 10% position in the XLF (Financials ETF) Friday (6/16), and this was preceded by several Navigator sell signals in the S&P 500 index Thursday (6/15). The XLF was our only swing position, so we are back to 100% cash, but the key question this morning is whether the bulls, once again, will buy the several-day pullback or whether the long-expected, intermediate correction has finally worked its way into the S&P 500 and NASDAQ 100 indexes. 

Arguably, there has already been a stealth correction well underway in many economically sensitive sectors since April – but masked in the indexes by the weighting of a narrow group of large-cap growth stocks. Another rotation from tech and growth back to value and cyclicals could keep the rally alive or at least put the market into a trading range for the foreseeable future. However, we would need to find the bottom of that range in this pullback. 

Sentiment indicators are already showing considerable short-term fear, so I would expect a fairly quick resolution of this first down leg. Unfortunately, that does not tell us where the price will pivot or where we go from there. Watching the Morning Outlook for Day Traders will help you identify the key levels for a turn.

Technical Discussion

Coming from the top of the short-term trading channel on Tuesday (7/13), by Thursday (7/15), the market had closed below the previous day’s close (at minimum a “heads-up” alert). This also generated a preliminary (yellow) Navigator Swing Sell Signal, with further confirmation from a close below the Navigator Algo sell trigger. However, the 5-day line held, if just barely. 

By Friday (7/16), the market closed below the 5-day line, with the weekly bar closing below the prior week’s low for the first time in five weeks (another important “heads-up”). All of this occurred on multiple breadth, momentum, and strength divergences failing to confirm the recent index highs at the channel top, which consummated a selling climax and throw-over at the top of the channel. Our sole position, a 10% position in the XLF, closed below its 5-day line Friday, triggering our stop. This resulted in a small loss and put us back to a 100% cash position in the Navigator swing strategy.

The price action this past week underscored some key takeaways from last week’s View from the Top report. I had pointed out the negative breadth (and other divergences) in a market (using the S&P 500 index as our proxy) that was long overdue for an intermediate correction. The 18-month cycle top still loomed large. At best, though, the cycle bottom has such a time variation that the potential cycle topping zone can only provide some context to what we can currently observe in real time on our screens. 

In fact, I believe that the cycle has been operating stealthily in many sectors since April and may finally be catching up to the major indexes. One expectation I communicated was the unlikelihood of July closing as another positive month, given the statistical probabilities. Naturally, that supposition would need to manifest soon, as we are 2/3 of the way through the month. 

Also, I have been pointing out the Butterfly harmonic sell pattern in the NASDAQ 100 over the past few weeks. As the NASDAQ has been the recent market leader, its breakdown from the pattern would be a negative development for the broad market. 

Finally, I pointed out the rally in defense/risk-off sectors and asset classes, such as treasuries, as eerily similar to signals I observed in January 2020, right before the China Virus crash. While not predicting a crash, I pointed out that the rally in stocks and treasuries basically was a contest. Only one of these asset classes could be right in the current circumstances.

Nevertheless, I also pointed out that the relentless bulls would continue to buy one to three-day pullbacks until such buys stopped working. This morning, we will get a chance to test the bulls, as the market is trading such a pullback right to the 21-day line. The 21-day line typically divides the short-term up or downtrend. It also provides support for the market more often than it doesn’t. After that, more support congregates around the 50-day line.

If you backtrack several months, you also will see that most of our pullbacks this year have been right at this same mid-month period into monthly options expiration and only lasted a few days. Friday was monthly options expiration, in addition to weekly. 

Recall that the June pullback on quadruple expiration Friday left a scary bear bar closing at its low and below the 50-day line, only to see the bear breakdown fail the following Monday. The market followed through and continued the next bull leg up through last week. The bulls will be similarly tested once again today.

Also supporting the bulls, the CNN Fear Greed Index (above) is down to 23, and the CBOE total put/call ratio (below) spiked again on Friday. So sentiment would support a short-term low and turnaround here, though there is no indication whether the 21-day line will be good enough for a pivot point or whether we will need another trip to the 50-day line or some other level. 

And even if the market turns quickly again, there is no assurance that the trend will resume. Recall my prediction in the last writing that a trading range is a highly likely outcome of the bull micro-channels breaking down on various time frames.

A Shot at the Fundamentals

I still ponder the question, why are interest rates falling and economically sensitive stocks weakening? Three issues likely form the heart of this current market dissonance. 

First, inflation is devastating the purchasing power of individuals. My wife has been in Greece for five months, but for a few days when she came home, and all of us had to return when her father took an unexpected turn for the worse. My wife is a very conscientious consumer. Yesterday was her first trip to the grocery store since this past February. Needless to say, she was shocked by the prices.

Inflation is a deadly, ominous hidden tax that angers me to my core and hurts those at the bottom of the economic ladder the most. This administration promised to help those at the bottom, not hurt them. One only needs to look at the price of housing, gasoline, and food to ask the question, how are the current policies working for the poor and middle class? 

If the Fed isn’t in the pocket of the current administration, it will begin the process of reversing its dubious, inflationary monetary policies soon, and the markets may be anticipating the end of the liquidity party.

Second, the extended unemployment benefits end in September. As well, many of the mortgage, rent, and other debt relief programs will expire soon. The transition out of all of these subsidies has to be a concern to current market participants.

Finally, we are experiencing a third China Virus wave with cases increasing daily. As it is called, the Delta strain is apparently quite virulent, highly contagious, and vaccine-resistant. More masks? More lockdowns? More shots? Who knows, but sometimes the fear of something is worse than the something itself, at least for the financial markets.

Any combination of these fundamental factors could be the catalyst for a one to three-month, intermediate correction, long overdue in this market. I patiently await this correction to aggressively deploy capital. I have done this too long to plunge in near a top, no matter how good it looks. We just got stopped out of the XLF, even though we kept the position small and bought it after nearly a 6% correction and double bottom off the trading channel. So just because something is low, does not mean it cannot go lower.

Conclusion

This week, I have shifted my stance from “neutral to bearish” to “bearish.” Really, my opinion does not matter. The change in my position telegraphs that I want to go back into the market on a good downdraft instead of a minor one. I need to see a true correction and pivot on the daily chart to garner my interest in a swing position.

While we should get a short-term turnaround or bounce today or tomorrow, that may be a time to raise cash. Markets rarely form an upside down “V” top. Usually, they will climb back up one more time and either test the old high or fall slightly short of it, if the intermediate correction is finally underway. The evidence is mounting that the trend is (at the very least) transitioning sideways, if not into the anticipated full-blown, intermediate correction.

During this period of unusually high risk these past few months, I have been quite satisfied with day trading, as opposed to holding overnight positions. Watch the Morning Outlook for Day Traders, updating three times daily, for guidance. However, paper trade for a while before you plunge into day trading. Day trading has its own foibles to challenge us.

I am understandably frustrated that stops and sell signals were taking place on the two days I was stuck in airports and on airplanes traveling, though I did my best to drop a few paragraphs to keep you updated. I was on a single, direct plane flight for nine hours on Friday between Frankfurt and Denver when the most critical market violations occurred.

What I find difficult (and have these past few months) is that while our swing-trading sell triggers have been excellent, the need to turn around and reenter on a buy signal almost instantly and in such an overvalued market is not so easy to execute, especially having just exited a few days earlier. If that becomes necessary here, it won’t be easy either. Every step higher in this market involves increasing and considerable risk.

If you still hold some XLF, you can see if we get a turnaround today with the bulls, but I have learned over the years to be rigid with my stops even though we get whipsawed once in a while. The XLF was doing all it should until Friday, when it got caught up in the widespread selling. That was my one fear in taking the position.

Patience is a virtue here. As always, be careful.

A.F. Thornton

Navigator™ Signals for Day Traders

Brief Comments – 7/16/2021

AF Thornton 0 Comment

There is nothing more fun than flight cancellations in Frankfurt, not to mention spending the night in an airport “hotel by the hour.” I used to think that hotels by the hour were sketchy, but that is a story for another day. One good thing, my wife loves the “Tiny Houses” show on HGTV. “Wouldn’t that little house simplify our life.” she says. “So cute.” After spending the night in a stuffy cubicle of a room, I think she is cured now.

Did I forget to mention that we now need new PCR tests while stuck in this airport? They are only good for 36 hours – and that expired yesterday. It takes 24-48 hours to get the results – unless you pay about 750 Euro (about $950) for a six-hour result. That is more than the plane tickets home.

They are turning away people with vaccines which is even more fun, as many do not have the proper paperwork or did not wait long enough after the vaccine to travel. Apparently, there is a waiting period after getting the vaccine before you are safe to travel and not pass the virus to others. Like what? I know; you get the vaccine, and now you are contagious? This is the craziest vaccine I have ever encountered.

But at least now I know how to say an “F” bomb in about seven different languages. I think I learned some other swear words too, but I will wait to look them up on Google translate before i accidentally share them. 

And, incidentally, I would never fly Lufthansa again. They do not know how to handle the problems they cause for their customers. It is the worst airline I have ever encountered, and I have flown a lot over the years.

Since the vaccine caused my father-in-law’s death, I am not jumping up and down to get mine if I ever get it. And with all of the above, to say I am looking forward to my nine trading screens and home is an understatement.

More importantly, nothing has changed in the markets, at least as far as our S&P 500 index market proxy goes. We have seen a small pullback to the trendline over the past few days. The put/call ratio spiked – meaning that the fear spiked as it does at lows, and I would have bought yesterday’s low had I been in front of my screens. The volume spiked similarly as it does at lows. As I have said, the bulls will keep buying these small pullbacks until it stops working.

Yesterday morning, we had a gap down per gap rules and then the expected short-covering rally on inventory adjustments from Globex. After traders established the 30-minute opening range, we went on to a breach and retreat trade, (also a downside breach of the recent multi-day balance range). So this was a short rather than a long trade to the measured move at double the range. As to the multi-day balance range, the move down qualified as a look below and fail per our balance rules, likely meaning we will head back up to the highs again.

The 30-min opening range trade is a good, reliable trade on most days. Even though this was a downside (as opposed to upside) breach, the analysis was the same. The market sold off and then reversed at the measured move (double the range), with a “V” reversal back up and into the close. All of this fluctuation still held the 5-day line on the Daily Chart, more or less, which is all we ask at this point.

I still expect the market to go up to the 4404 magnet we have been discussing, and perhaps eventually higher to 4500. Not that the market really cares what I expect. But that is about as far as I can stretch it. Of course, we are smack in the middle of the month, where we typically see pullbacks and weakness.

The XLF (Financial Sector ETF) has held its own as well. It delivered a positive return in an overall negative environment yesterday. The August calls remain a bet on slightly higher interest rates, driven by higher than expected inflation. So we will continue to hold this position. 

The concern would be the XLF getting caught up in a macro, intermediate correction long overdue. So just like the S&P 500 index itself, an XLF close below the 5-day line (with a little wiggle room) continues to be my stop threshold.

Also, if money gravitates to a risk-off preference, the accompanying treasury buys could keep a lid on rates and bank spreads. Banks need higher rates and spread to drive their earnings.

A.F. Thornton

Founder's Trading Journal

Brief Comments – 7/15/2021

AF Thornton 0 Comment

I am in an airport and posting from my phone, so this will be brief. As to our core S&P 500 market proxy, while there was some selling in yesterday’s regular session, the value area remained completely unchanged. Prices did not test the overnight low. Today we have an overnight session somewhat weaker which has taken out that prior Globex low but is currently trading above it and just inside of yesterday’s regular session range.  

Given the current price level, Balance Rules will be in play this morning, as will Gap Rules if we open below yesterday’s regular session range. From there, I would evaluate the morning session as follows:

  • The first order of business will be to see if prices open on a true gap or not.  If so, given that overnight inventory is 100% net short (give or take a few ticks), the propensity for short-covering exists. 
  • If we open within range, then there is no true gap, and we should assume that short-covering is already underway.  If so, yesterday’s regular session low will be the important key level to discern if we are trading in or out of balance and will be my bull/bear line in the sand for today.  
  • On any strength, assume yesterday’s POC is the target.  This is the obvious high volume node that should serve as any upside magnet.  
  • Any acceptance below yesterday’s regular session low would indicate a potential for a “look below and go” as per the balance rules. If so, target the Top of the Single Prints first and monitor for continuation. Tempo and tone will have a lot to do with whether or not this happens as will any divergence between Nasdaq 100 and S&P 500.  The market will need both sides to be selling for any real follow through to occur.

AF Thornton

Navigator™ Signals for Day Traders

Epilogue – 7/13/2021

AF Thornton 0 Comment

This will be my last update and commentary until Sunday, as I will be traveling for the next few days. 

Using a 5-minute RTH chart and just like Monday, our S&P 500 index market proxy started with a weak bull trend from the open on weak internals.  After some consecutive complex tops and four pushes, we saw a mid-day reversal down into the top of the single prints identified yesterday morning around 4362. The 21-day line shifted from support to resistance for the rest of the session.

We saw a long trade from a Navigator Algo trigger buy signal near the open and another on the breach and retreat from the 30-minute opening range. Like Monday, the target was double the range where the price then reversed. The reversal generated one good, clean short trade which ended in a final flag. The rest of the day was sloppy and choppy.

Our XLF trade made a nice turn on support at the 5-day EMA but could not make much further progress after lunch. Nevertheless, it held its ground in the wake of solid results reported by Chase and Bank of America. There is always some profit-taking on the earnings reports. The XLF is poised to take advantage of some more pressure on interest rates in the wake of the third upside surprise in the monthly inflation data.

As I have been counseling, the probabilities are that July will close below the open of the month since we have six consecutive monthly bull market candles on the chart. It is highly unusual to have that many uninterrupted, positive months.

The market is likely to evolve into a trading range, and Tuesday’s action underscored that narrative. We will continue to use a close below the 5-day line on the XLF as our stop line. The XLF is poised to do well, but there is a risk it could get caught up in a market correction if the broad market decides to take a tumble later this month.

We will dig deeper into all of this on Sunday.

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook 7/13/2021

AF Thornton 0 Comment

Inflation came in hotter than expected for the third month in a row this morning, sending futures down a bit deeper into yesterday’s regular session range but nowhere near the low. Yesterday’s distribution made the same “p” pattern as the prior day. This is a minor data point to carry forward that tells us that there are still some shorts covering from the one-day selloff of last week. We now have two of these single print patterns back to back.

Even with the CPI shakeup, overnight inventory is relatively balanced and only slightly net short. Futures are also trading close to overnight halfback at the moment, which tells us little about how the open will play out. NASDAQ 100 futures showed relative strength before the economic data but have now fallen more in line with the S&P 500.

The better trades should develop later rather than earlier in the session. I will favor the buy-side only if prices are above the top of the single prints at 4344.25 from yesterday.

Trading into the single prints has the potential for long liquidation. Carry forward that the overnight high could not make a new all-time high which increases the odds that there are some longs with poor location near yesterday’s regular session high. Think in terms of old business versus new business. Old business will always be transacted first.

A.F. Thornton

Navigator™ Signals for Day Traders

Epilogue 7/12/2021

AF Thornton 0 Comment

Yesterday, our S&P 500 index market proxy started with a weak bull trend from the open on weak internals. The initial, bull microchannel price action ended on a parabolic wedge that stalled at double the 30-min range, and eventually broke to a new, all-time high in the afternoon drive from an ascending triangle consolidation. 

There were a couple of buys near the open and a classic, initial 30-min opening range buy after the first half-hour that topped at double the opening balance range. From there, you could have taken a number of trades off the 21-EMA line, selling either at the triangle top or at the Keltner Bands or Bollinger Bands.

Often, when the market is trending on weak internals, a good target is double the initial 30-min range, as we saw on this day. The market remains strongly bullish on the daily, weekly, and monthly charts, and the downside likely is limited for at least the rest of the week.

The probabilities are that July will close below the open of the month since we have six consecutive monthly bull market candles on the chart. It is highly unusual to have that many uninterrupted, positive months. 

With July likely to close below the open of the month and after the 11-day microchannel (buy climax) ended last week, the probabilities are that there is  limited index upside for the remainder of the month – and the better focus is likely on stocks and sectors that are still rising. Since there is not a strong likelihood of significant gains or losses

In the near term, traders should expect the bull trend to evolve into a trading range. There were a number of good “scalping” trades throughout the day, as illustrated on the chart above.

A.F. Thornton

Navigator™ Signals for Day Traders

Mid-Day Update – 7/12/2021

AF Thornton 0 Comment
XLF (Financials ETF) Daily Candles

Another bullish market breakout to add to our collection. So we are status quo for now, but still wondering how the small megaphone pattern will resolve on the daily S&P 500 chart. Will it lead to another break? Or will it be a consolidation to go higher still? Be mindful of the magnets above at 4404 and 4500. 

Internals are mixed, as we broke out of the 30-min clearing range and then doubled it, a widespread occurrence. But with internals mixed to weak, I am not sure there will be much more index upside today.

Meanwhile, our XLF entry was well placed on Friday, as the XLF is the top-performing of all 11 S&P 500 sectors today. XLK (tech) is weaker, in fact barely positive, indicating at least some of the anticipated rotation discussed in this morning’s writings.

Our next discussion will be today’s epilogue after the close. Remember that I will be out Wednesday, Thursday, and Friday traveling back to the States, so there will be no outlooks on those days. If anything of significance occurs, I will send off a quick note from my phone. Continue to use a close for two hourly bars below the daily 5-EMA on the XLF for a stop. The XLF has managed to get through the 21-day line today, leaving only the 50-day line to conquer into clear sailing. The daily 5-EMA sits at 36.63 at this writing.

A.F. Thornton

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