All posts by AF Thornton

Navigator™ Signals for Day Traders

Epilogue 4/7/2021

AF Thornton 0 Comment

Today (Wednesday – 4/7/2021) turned out to be outstanding for day trading, allowing two-way trading – both long and short. I traded one Nasdaq 100 mini contract for 228 points or just a little over $4,500. Of course, I could have traded more contracts, and I prefer to trade at least two contracts at a time. That way, I can get risk out of the overall trade as soon as possible by selling the first contract for a profit and moving the stop up on the second one to guarantee break-even on the overall transaction. But today, I wanted to keep it simple so that I could demonstrate the trades to you. Also, I could have traded a NASDAQ 100 Micro Contract and lopped off a zero for a $450 day and 10% of the risk. Always keep the micros in mind.

Beginning with our macro-narrative, the market has been extremely bullish, reinforced today by not even flirting with any price action below the single prints or gap mentioned this morning. I have detailed the narrative in yesterday’s epilogue (4/6/2021) and touched on it again this morning.

In this morning’s outlook (4/7/2021), we came into the market expecting balance and rotation, with any gains likely capped at the Weekly Expected Move highs, and we were not disappointed in the least. I also cautioned not to take a trade right at the open (as the initial drive direction was not clear from the overnight profiles) and that turned out to be wise as the market gapped down, before starting a raging rally higher.

While the print is small, if you enlarge the chart below you will see the trades. Basically, I never trade over the New York lunch hour or the last half hour of the day – both shaded in gray. I will close trades that are already open during those times, but I don’t initiate new trades. Today is a perfect example as to why, as you will see the “kill-zone” or chop in the first shaded area representing the New York lunch hour. 

Other than that, all I did was initiate long trades on the Navigator Algo Trigger (candles turn blue), then closed them at the Weekly Expected Move high or the first orange candle (negative Algo Trigger stop). Twice, I shorted at the first orange candle at or near the Weekly Expected Move high, then covered when the candles stopped one-time-framing lower. Simple.

Most sideways price action does not have quite as much range as we saw today, and sometimes you have to tune down to a 2-minute or 1-minute chart to pick up trades. Today was a bit of an exception to have enough range to get decent two-way day trades out of a 5-minute chart – but there you go. We will be doing this live once a week in the new trading room beginning a week from tomorrow.

I cannot always get into this much detail in these writings. Yet, I hope you can see how our ongoing macro narrative, together with our morning outlook and identified key levels from the previous day and overnight session, can set you up for a lot of confidence in your day trading. 

You can also see the Weekly Expected Move high power, which has stunted further progress in the S&P 500 since Monday and the NASDAQ 100 since yesterday. Having said that, the NASDAQ 100 and S&P 500 have both blown through the levels in Asia so far tonight. 

Though rare, the market makers could be forced to buy futures to cover their bets before Friday expiration – driving the markets considerably higher still. That is the exception, not the rule, and the Europeans have not yet had their say. Also, there is still plenty of time for the market-makers to bring the prices back by Friday. So I move forward on the rule rather than the exception as the most probable outcome.

The market-generated information from today is that the market is accepting these higher prices, which remains bullish. The next piece of information will come if we break to the trading range’s upside this week, or below it as the case may be. Tonight, the Asians are breaking us to the upside, but traders and investors must confirm that in a day session as that is where the big volume resides.

A.F. Thornton

Navigator™ Signals for Day Traders

Morning Outlook – 4/7/2021

AF Thornton 0 Comment

Starting with a view of the daily chart of the S&P 500 index, we see a “Trend Reversal Imminent” label lighting up on the Navigator Algorithm panel, with an “E” signal on the chart itself – connoting trend exhaustion. We tagged the first dynamic channel line, indicating that a mean reversion is possible soon, though we could hug the top channel line for a while. When we add that we have the Weekly Expected Move high holding us back through Friday, longs need to be very cautious here in day trading. Remember, pigs get fat, and hogs get slaughtered – it has already been a good week. Why push the envelope? Liquidation breaks are possible as the market still needs to repair the single prints from Monday.

One could short the moves above the WEM through Friday and cover back at the line. If the WEM high and the dynamic channel were not in the way, one could argue simply that a bull flag is forming to get us through the end of the week. One dynamic I have seen in wildly bullish weeks is that the futures spike after options expire at the Friday New York close – since the futures trade for a while longer and are no longer constrained by the weekly option market makers. That could be interesting this Friday, if the market remains this bullish. Be sure to review the cycles report coming out later today for further guidance on upside targets.

Inventory from last night is mostly long, but we have a fat, squatty profile inside yesterday’s regular session range until a few minutes ago when we tested yesterday’s regular session low. This indicates balance, just as a similar profile did yesterday, but traders also consider prices fair here. If we open below yesterday’s regular session low, that would be slightly negative at the open, giving us a slight downside bias. Still, otherwise, there is little to be gleaned from overnight action to guide us in the opening drive. In the circumstances, it is usually best to trade later rather than earlier.

On the upside, we were left with a poor high in yesterday’s regular session. We already got a little backing away from it towards the close yesterday. Today will be about how much more we get and whether or not it can repair. Continue to carry forward this high as in need of repair. 

For the S&P 500, key levels will be the Globex low currently at 4057, which is the top of the first set of single prints; then 4046, which is the top of the next level of single prints; and then the 4/5 low at 4037 which is also the top of the 4/5 gap. Any of these levels could provide support on the way down – and it is fine to visit them briefly. But acceptance at or below these levels could change the current, positive tone. Bigger picture, remember that the S&P 500 likes to progress in 50 point increments and stall – so 4050 and 4000 are key levels to watch. Any bounce off the 4050ish level back up into yesterday’s range should be considered bullish.

I would trade the NASDAQ 100 by analogy to the S&P 500 index and levels.

Keeping in mind that overnight action often dictates tone for the regular session, do not be surprised if we see more range-bound chop today. Wednesdays have a history of being choppy days anyway. I use the NYSE ticks, NYSE, NASDAQ and S&P 500 advance/decline lines, and advance/decline volume to help guide me as to trend. You typically need at least +250 or -250 advancers or decliners in the S&P 500 to trend in the applicable direction. Anything close to even indicates chop. The monsters of tech can distort the picture – so make sure you take a look at a heat map of the S&P 100 to determine what is driving the index.

Best wishes for a fabulous day trading day!

A.F. Thornton

Navigator™ Signals for Day Traders

Epilogue 4/6/2021

AF Thornton 0 Comment

Today was a picture-perfect demonstration of our morning expectations and projections. The market does not always please us with such predictable compliance. Before we get into that, I want to repeat and expand our ongoing, market-generated narrative – emphasizing the big picture from 30,000 feet.

Contextually, we continue to rise out of the gates of the 20-week cycle low (March 5th) and the retest of that low on the 20-day cycle loop (March 25th) – this remains bullish. Besides the positive fact that the lows came in almost to the day and on schedule, negative sentiment spiked on both days as measured by the CBOE Put/Call ratio and the CNN Fear/Greed index, furthering our confidence that both of these lows would hold. We had Navigator Algorithm and positive momentum buy signals on these lows in the indexes and many related “growth” sectors – another bullish sign. We were transitioning from March – which traditionally favors more defensive or “value” market sectors to April, typically the best month of the year for the stock market, “growth,” and technology. Clearly, we were bucking the market’s “value” style popularity, interest rate fears, and rising inflation narrative. It can be advantageous to fade these “ruling reasons” at important cycle turns.

On April 1st, we closed on the day’s highs for both the NASDAQ 100 and S&P 500 indexes and on top of the previous day’s spike – unbelievably bullish. On April 2nd, the market was closed for Good Friday, but overnight activity in Globex (the overseas markets were open) carried us much higher – bullish. Then yesterday, we had a Gap and Go with a strong close and no gap fill, leaving a long line of single prints and a long “P” formation (typically a positive trending continuation pattern), not to mention a virgin (untouched) point of control – mostly bullish. Many single prints indicate somewhat desperate, emotional buyers that were likely panicking to cover their short positions.

Perhaps the only negative was that yesterday’s structure was shaky with all of the single prints, and the overseas markets were closed, leading to light volume. But overnight activity in Globex last night was balancing in a small range, barely testing a portion of yesterday’s lower single prints – which was mostly bullish and showing acceptance of yesterday’s higher prices overseas. Moreover, we obliterated the latest market narrative that the NASDAQ 100 was linked to interest rates and inflation expectations.

The reality is that the Nasdaq 100 is waking up from a period of sleep – with most growth stocks consolidating since last August. Buyers are engaged with plenty of catalysts to support their activity. The structural implications also give us plenty to work with in terms of one of our favorite counter trades, “When What Should Happen Doesn’t.”

Note from the market and volume profiles below that the NASDAQ 100 rose a bit higher today as predicted, but the Weekly Expected Move high became the obstacle and is likely to contain the market for the rest of the week. The action today was otherwise a bullish follow-through, adding to the narrative.

Looking at the NASDAQ 100 on a traditional candlestick daily chart, note again how the Weekly Expected Move was the brick wall as predicted today. The last candle is the Globex activity so far tonight.

Also, as anticipated, the S&P 500 did not make as much progress today as the NASDAQ 100, as the S&P 500 was already tagging its Weekly Expected Move high yesterday. After trading above it for a while today, it tucked right back under before the close. It amazes me to this day how much Friday’s weekly options expiration level influences the indexes every week and how few traders even know about it.

Looking at the S&P 500 on a traditional candlestick daily chart, note again how the Weekly Expected Move high (red-dotted line) was the brick wall as predicted today and yesterday. As with the previous NASDAQ 100 chart, the last candle is the Globex activity so far tonight.

Today maintains the bullish narrative, but we are stuck at the Weekly Expected Move highs for both indexes, and likely until Friday. The NASDAQ may be tempted yet this week to try to tag its former all-time high, but it will be tough sledding fighting the market-makers above the its expected move high. 

So I expect more backing and filling this week before further progress is possible. The indices need to repair the single prints from yesterday, meaning we will likely go lower before we go higher next week. Even then, we are already at projected targets for both time and price based on several different measures. I am uncertain about how much more upside is possible, but this market continues to amaze me.

It would be best if you always carried a market-generated narrative to be successful in short-term trading. Notably, all of the narrative cited above is generated by the markets and indices themselves. That is why I call it MGI or Market Generated Information. It is not my opinion. As such, it is likely more accurate and objective, just like the Navigator Algorithms. I make it a point never to argue with the markets unless I am prepared to lose money – something I studiously avoid.

I will have more guidance for day trading in the morning.

A.F. Thornton

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

NASDAQ 100 Approaching Weekly Expected Move high – New Sell in S&P 500

AF Thornton 0 Comment

The NASDAQ 100 traded just under its Weekly Expected Move high at 13,637 this morning, so be aware of the limitations to further upside progress once this level is achieved. The Founders Group currently has 10% allocated to the index (in leveraged futures), and we are satisfied with that position on a swing-trading basis.

The Founders Group also cut our S&P 500 futures position back to 10% by selling another 10% of the position at 4074.25 this morning, taking advantage of its position above 4067 which is the expected move high for the S&P 500 index this week. 

This results in our current allocation for the Navigator Swing Trading strategy as 10% Nasdaq 100 futures, 10% S&P 500 futures, 10% XLF (Financials) options, 10% XLW (Energy) options, and 5% GLD (Gold) options for a total of 45% invested, but still considerably leveraged.

Sell signals are not driving these allocation reductions. We are simply deleveraging in light of the substantial gains experienced over the past three sessions. If we were not leveraged, we would consider maintaining fully invested positions until we had a Navigator Algorithm sell signal at hand.

A.F. Thornton

Navigator™ Signals for Day Traders

Morning Outlook – 4/6/2021

AF Thornton 0 Comment

Our primary day-trading vehicles are the NASDAQ 100 or S&P 500 futures, though we can apply the principles I discuss here to stocks. We ask ourselves three questions every morning – questions I would originally credit to Jim Dalton (JimDaltonTrading.com) and Peter Reznicek (ShadowTrader.net). First, are we opening in or out of balance? Second, is overnight inventory net long or short? Third, where are we opening within the entire overnight range? The answers drive my opinion about whether or how to trade the open, or perhaps wait for a trade later in the session.

Balance is defined by both the prior day’s regular session range and any larger, recent balance area that may be present. I determine balance by looking at the recent Volume and Market Profiles for the applicable index or security. You can also look at a traditional bar or candlestick charts and draw lines/rectangles around visible trading ranges or the previous day. I don’t find drawing lines or rectangles to be as accurate as using the Volume or Market Profiles.

Typically, old business is always conducted before new business in the financial markets. The overnight traders’ positioning tells you if they will take profits on their long or short positions at the New York open. Whether you can have faith in the opening drive direction in the markets can largely depend on what these overnight participants need to do with their inventory. The opening drive can easily reverse after the overnight traders deal with their inventory and profits.

Today is a good day to take a look from 30,000 feet and revisit our ongoing narrative. Contextually, we continue to rise out of the gates of the 20-week cycle low (March 5th) and the retest of that low on the 20-day cycle loop (March 25th) – this is bullish. Besides the positive fact that the lows came in almost to the day and on schedule, negative sentiment spiked on both days as measured by the CBOE Put/Call ratio and the CNN Fear/Greed index, furthering our confidence that both of these lows would hold. We had Navigator Algorithm and positive momentum buy signals on these lows in the indexes and many of the growth sectors – another bullish sign. We were transitioning from March – which traditionally favors more defensive market sectors, to April, which is typically the best month of the year for the stock market and technology. Clearly, we were bucking the market’s interest rate and inflation narrative or “ruling reasons” which can be advantageous at turns.

On April 1st, we closed on the day’s highs for both the NASDAQ 100 and S&P 500 indexes and on top of the previous day’s spike – unbelievably bullish. On April 2nd, the market was closed for Good Friday, but overnight activity in Globex (the overseas markets were open) carried us much higher – bullish. Then yesterday, we had a Gap and Go with a strong close and no gap fill, leaving a long line of single prints and a “P” formation, not to mention a virgin (untouched) point of control – mostly bullish.  A lot of single prints indicate desperate, emotional buyers that were likely panicking to cover their short positions. 

Perhaps the only negative was that yesterday’s structure was shaky with all of the single prints, and the overseas markets were closed, leading to light volume. But overnight activity in Globex last night was balancing in a small range, barely testing a portion of yesterday’s lower single prints – which was mostly bullish and showing acceptance of yesterday’s higher prices overseas. Moreover, we obliterated the latest market narrative that the NASDAQ 100 was linked to interest rates and inflation expectations.

In one sense, the single print nuances clearly point to a very shaky structure that is “piling on,” while the reality is that the Nasdaq 100 is waking up from a period of sleep. Buyers are engaged with plenty of catalysts to support their activity. The structural implications also give us plenty to work with in terms of one of our favorite counter trades, “When What Should Happen Doesn’t.”

This morning, we are slated to open within range on overnight inventory that is net short but not 100% so. We are trading close to overnight halfback, and I am noting that the overnight distribution is compacted, indicating that the market is balancing and accepting the higher prices. As noted below, the overnight low traded into a long line of single prints but didn’t get very far – a bullish sign.

For now, overnight activity is pointing to balance – likely to be sideways action for the S&P 500 index as we are already bumping up against the Weekly Expected Move high. The NASDAQ 100 has room to trend a bit higher, until it tags its Weekly Expected Move high just above current levels at 13637. The overnight tone typically sets the tone for regular session activity, which makes perfect sense today given our upward boundaries and the past three sessions’ significant progress. Emphasis should always be placed on “typically” as nothing in the markets is universally true. As the overnight lows for both the NASDAQ 100 and S&P 500 had all the potential for trading lower last night in Globex, it makes sense to assume that they are secure until they are not.

Should the overnight lows be breached, there is a clear lack of support below them, with a long line of single prints sitting above huge gaps. Potential shorts are likely premature, and any failure to liquidate into the single prints will carry the bullish scenario forward.

The overnight low and yesterday’s high will be near the open for both the NASDAQ 100 and the S&P 500, so I will use them as potential breakout or breakdown levels in the first part of the day.

Best wishes for the session today.

A.F. Thornton

Navigator™ Signals for Day Traders

Epilogue – 4/5/2021

AF Thornton 0 Comment

In the Morning Outlook for Day Traders yesterday, we pointed out that there would be a true gap, and gap rules would apply. A true gap is a gap where the market opens above the previous trading day’s high. This is much more meaningful than merely opening above the previous day’s closing price. When I use key industry terms, I often highlight them to click and go to a glossary – especially when I invoke trading rules. Look for highlights when you don’t understand or may forget the rules.

Sometimes, the software is difficult to work with. I am usually in a hurry to get the information out to you before the morning opens, but with as much of the overnight data under our belt as possible to give an accurate assessment of the day ahead. It does not hurt to check back about 30-minutes after the open to find corrections, links, and typos cleaned up on the Morning Market Outlook for Day Traders. The timeliness of the information takes precedence over minor typos.

Even though I have created algorithms that give me extraordinary guidance in making both short-term and long-term investment decisions, Jim Dalton (JimDaltonTrading.com) (now 80-years-old and an industry legend) taught me the importance of “thinking” as a young trader. What does the market-generated information objectively tell us about the market? What is the market doing – what is the general tone and bias? What is the market trying to do? How successfully is it accomplishing the goal?

Yesterday was a great example of a gap and go – the application of Gap Rule #1. This behavior communicated how strong the markets, especially the NASDAQ 100, truly were yesterday. We now carry that narrative forward with us today.

A couple of caveats are in order from yesterday, however. Many overseas markets were closed for Easter (our previous night and half the day). Accordingly, yesterday’s volume was light. Perhaps more importantly, the bond market was quiet without the overseas participants, so bonds and rates did not interfere with the U.S. climb. I also carry that narrative forward. 

Yesterday still counts as positive bias, but perhaps not as much as a day with full participation by all global market participants. International perspectives about our debt, spending, and interest rates are quite different than the domestic front. Interest rates are front and center lately.

Put yesterday’s action in both the S&P 500 and most notably in the NASDAQ 100 as samples of Gap and Go days to refresh your memory periodically. Also, note the behavior when the S&P 500 Index tagged the Weekly Expected Move high. It danced there for the rest of the day.

A.F. Thornton

Navigator™ Signals for Swing Traders

Weekly Expected Move Tagged on S&P 500 Index

AF Thornton 0 Comment

The last few sessions have seen a phenomenal rally. But the S&P 500 Index, as well as the XLK (technology), XLC (communications), XLY (consumer cyclical), and XLB (basic materials) sectors, have already tagged their weekly expected move highs – diminishing the probability for further gains this week. Expect some backing and filling and perhaps a retest of recent breakouts. Again, we are contemplating the probabilities.

There are times when the market will blow materially through the weekly options expiration highs. On these rare occasions, the gains can be something to behold – as market makers are forced to buy futures to neutralize their losses, leading to further gains. There is tolerance for some excess over the levels, especially early in the week, so the price must materially exceed the expiration levels to trigger the market makers. But that is the least probable outcome, so carry forward the levels we just achieved and these implications.

Tagging the expected move highs is the reason the Founders Group trimmed positions this morning. We do not have an Algo Sell signal as yet.

Navigator™ Signals for Day Traders

Morning Outlook – April 5, 2021

AF Thornton 0 Comment

We have the S&P 500 Index achieving new high territory again this morning, having decisively cleared the elusive 4000 mark, with the NASDAQ 100 clearing the resistance between the index and the old high. Both indices will gap open as true gaps, so gap rules apply this morning. We will have Treasury Secretary Yellen sounding off on the new infrastructure bill and proposal later this morning – certain to bring a bit of volatility to the table.

As with all true gaps, the early fade potential is present, especially on large gaps such as those presenting this morning. Whether you trade them or not, use the gap to your advantage to glean the market-generated information that will be revealed by what the indices do or don’t do in early trade. 

For example, Is the fade fully to last Thursday’s high? Is the fade partial to about halfway? Is the fade barely perceptible with almost no countertrend activity? Each of these outcomes tells us a lot about each index’s strength and how we should interact with it.

Assume strength above the overnight high at 4038 on the S&P 500 index as there is no technical resistance. Monitor for continuation.

As per Gap Rule #4, don’t discount the potential for the futures market to trade sideways for the duration of the session. This is common on large gaps, and traders should look to individual equities for higher odds intraday plays rather than futures.

As you know, I rarely trade Mondays, and that goes double for Mondays after a three-day weekend. Over the past 34 years, I have learned that traders and even institutions sometimes do weird things after a few days to breathe and reconsider their positions. I like to have that out of the way and prefer to trade beginning on Tuesdays.

The expected move this week for the NASDAQ 100 is 303 points – ranging from 13031 to 13638. For the S&P 500, it is 47 points – ranging from 3972 to 4067. As with most weeks and depending on direction, we will tag one of those levels, and then the market will stall for the rest of the week.

A.F. Thornton

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