All posts by AF Thornton

Navigator Algorithms – 100 Cash

Revenge of the Nerds

No doubt you have heard by now that a bunch of day traders in a Reddit social media group just cost a couple of prestigious hedge funds about $18 billion. The hedge fund managers then went on CNBC whining for regulations to stop these kinds of traders. The Biden administration promised to look into the matter.

Before the day was done, Reddit had shut down the trading group for “hate speech.” But they were back up by yesterday evening – though the group is now private. Perhaps the group cut a deal with Reddit to stay alive by remaining private. But the whole situation reeks of the same dangerous virus overtaking the country. Free speech is under attack, and communism is rising fast. “Shut up!” “Obey!” say our new leaders in Washington D.C.

But let me make sure I get this right. First, some hedge funds shorted a company called GameStop (GME). Shorting means that the hedge fund makes money if the stock drops in value. As usual, the hedge funds went on with their favorite CNBC hosts (co-conspirators) to slam the company and drive the price down without regard to whether it destroys the company or its workers. Hedge funds do this all the time – it is a rigged, insider game but perfectly legal.

Except for this time, there was a melding of gamers and new day traders. Gamers love GameStop. And while GameStop is a brick and mortar company somewhat on the ropes, the company has just come out with a new strategy to move into an online model. The hybrid gamers/day traders got mad at the hedge funds. So they started buying the stock and bidding it up – the opposite of what the hedge funds needed. The next thing you know, the stock is up 700% in a day, and the hedge funds were brought to their knees.

The Reddit trading group has 2.5 million members. With scarcely a few hundred to a few thousand dollars each, they beat the hedge funds at their own game and left GameStop with a fighting chance to implement its new strategy. So the hedge funds are crying on CNBC, whining to the Biden administration, and begging the SEC to get involved. Yet, there is nothing illegal about what the Reddit Group did any more than it is illegal for the Hedge Funds to short a stock and talk it down. I am not talking morality here. After all, this is Wall Street,

Some talking heads (CNN, of course) were quick to blame Trumpism. Naturally, this misses the point. Simply put, everyone is tired of the rigged game. Trumpism is a symptom, not a cause. It does not matter if you are talking about bailed-out bankers, greenie weenies in their Lear Jets, perceived stolen elections, or the insider’s game on Wall Street; people are tired of it.

And if you have not seen the chain link fence now surrounding the capital with razer barbed wire curled around the top of it, you are missing a sight to behold. My vote is this. With the 5,000 National Guard troops in D.C., along with the new fence, all they need to do is throw up a few guard towers, and we now have all of these politicians in prison, which is where most of them belong.

In the meantime, our exit from the market was a true squeaker on Tuesday. We exited the S&P 500 at 3851.50, and it fell all the way to 3700 yesterday and overnight. In fact, the market sliced right through the 21-day EMA and the Weekly Expected Move, finding support at 3700, which also is the 50-day moving average. 

You have to go all the way back to October to find a similar negative launch day. At this writing, the S&P 500 is back to the Weekly Expected Move at 3767. That likely has a few options market makers breathing a sigh of relief, as that is the level they need to maintain to avoid significant losses at expiration tomorrow. Maybe they can get some help from the Reddit group?

At this point, we are getting the correction I expected, and I will look for a bottom and entry point. It would be highly unusual to have two market crashes start two years in a row on at around the same time. I cannot exclude the possibility, but it is not what I would expect here. 

For now, I am expecting something contained at 10% or less, with 3500 or so being the worst case, as I outlined in the 2021 forecast video last week. The next, large, crash-like correction should come from the 18-month cycle, which would bottom around late May. It would be a bit early to start into that correction now. That is my best guess anyway.

Yesterday, the Federal Reserve met and left their policies intact while conveying deep concerns about the virus and the economy. Likely, that backdrop served as incentive for the sellers yesterday.

For now, hat tip to the gamers. It looks like they are destined to make a habit of this. The control freaks in Washington D.C. wanted everyone to stay home, right? Apparently, they need to be careful what they wish for! The Reddit Group’s new targets are AMC Theatres and Nokia. It is fun to watch, but don’t be tempted to participate. 

The $18 billion hedge fund losses were similar to Hillary losing the Presidential election in 2016. The establishment was caught off guard – and their cheating algorithms were inadequate. The hedge funds are not stupid and are not likely to be caught off guard again. Like the establishment globalists, the hedge funds control the media. In this case, they control the financial media.

The game is rigged – just like Washington D.C. We made 896% last year keeping it simple. We are up 55% so far for the month of January. No need to play games or into the hands of the Wall Street crooks. I ran a hedge fund in the 1990’s. I know their games well.

A.F. Thornton

Navigator Algorithms – 100% Cash

What may be good for coffee is not always good for the markets. We squeezed another 40 points or so on this last round trip on the S&P 500 index, and we are off to a great start for the year. But as I have been mentioning, we are stuck in the corner of a rising wedge pattern.

 Unless the market goes completely vertical (and nothing would surprise me at this point), I don’t think we can squeeze another drop out of the market without waking up one morning very unhappy. This morning would have been a case in point. We were out yesterday at 3851.50 for a 39 point gain. The S&P 500 futures are down about 52 points from our exit at this writing.

In addition to the Navigator exit signal yesterday, the charts below (courtesy of David Larew – Twitter Handle @thinktankcharts) illustrate the point:

Valuations remain lofty. The earnings momentum we expect into year-end will help right the apple cart, but it does not hurt to briefly revisit the issue:

The momentum divergences I mentioned yesterday can be seen in this chart:

Breadth divergences are also making an appearance at this last high as can be seen below:

The sentiment still indicates a generally giddy crowd, and most of the crowd are retail amateurs. Truly, the market is a zero-sum game. We just took 40 points from someone:

This is not my first bull market, but these are the lowest levels I have seen in the put/call ratio in my 34-year career:

You know the old saying: “pigs get fat, and hogs get slaughtered.” The S&P 500 futures are back to the daily mean this morning – let’s see what happens.

As a side note, President Biden joined Grammarly’s view and signed an executive order outlawing the term “China Virus” yesterday, at least in the federal government. So if I use the term “Covid-19,” you will know why. Would someone please pinch me and wake me up?

A.F. Thornton

Navigator Core Algorithm Status

In summary, the market is likely to push a bit higher this week. There is a 70% probability that the upper end of the S&P 500 Index’s projected range will be 3893. If the market does start a correction this week, the lower end of the range is projected at 3766. There are possible continuation entry points on Transportation (IYT), Energy (XLE), and Financials (XLF or KBB). Big Tech (and therefore the NASDAQ 100 (QQQ)) has reasserted relative-strength leadership. Having said all of this, the market remains a bit stretched short-term, with a peak in the nominal 40-day cycle projected soon, and the next intermediate low projected to occur mid-February.

Last Friday, we helped everyone enter the S&P 500 Index on a continuation trade. The signal came at 3825.50 on the S&P 500 E-Mini futures, and the market allowed quite a bit of time to enter. Likely, some entered either slightly above or below this zone.

The follow-through has been muted by key resistance around 3850. That is the level to conquer if we are to take the market higher this week. As I often say, the S&P 500 claims or surrenders its territory in 50-point increments. When I see the index close above 3862, my confidence increases that the index has overcome the 3850 resistance and is ready to move to the next 50-point increment level at 3900. A close below 3833 would lessen my confidence and increase the likelihood that the market would move back to test 3800.

Recently, we have been experiencing sort of a push-pull rotation with growth stocks (think technology like the NASDAQ 100 (QQQ) and value stocks (think energy (XLE), financials (XLF or KBB), and transportation (IYT)). Essentially, Growth and Value have been swapping leadership positions over the past few months. Last week’s most notable event was the reassertion of Growth (big tech leadership), also reflected in the NASDAQ 100 index’s steep rise.

The big tech bounce came at the expense of profits rotating from the value sectors. This caused the value sectors mentioned above to move back to their mean on the daily charts – which is where they start the week. Continuation entries, or even the opportunity to take a short-term long position in the three sectors, is on my radar. I would use a close above the 5-day Exponential Moving Average on the three sectors as a potential buy signal, and I will communicate anything I see.

It is also important to note that we are in the “Nimble Stage” when considering how to treat our long S&P 500 or NASDAQ 100 positions. This means you need to be attentive because a correction in the 3% to 5% range (at minimum) will begin soon, based on the distance these indices have achieved from their mean at the weekly and daily 21-day Exponential Moving Averages.

Supporting the case for a near-term correction, we are a bit more than halfway through the Nominal 40-day cycle, with the next low projected in mid-February. The market is likely to peak and begin to move into that projected low soon.

Adding to caution here, February typically is one of the weaker months in the market, and reassertion of narrow, big-tech leadership is causing breadth to narrow, along with breadth divergences, which often precede a pull-back in the indices.

If you cannot be in front of your computer, consider setting a stop each morning on your long positions about 2 points below the 5-day exponential moving average. For example, I would set my stop at 3825.50 on the S&P 500 E-Mini Futures this morning – which also coincides with breakeven on our Friday continuation entry and ensures a profit for our original entry point at 3812.50.

In summary, then, the market is likely to push a bit higher this week. There is a 70% probability that the upper end of the projected range will be 3893. If the market does start into a correction this week (and I don’t expect that quite yet), the lower end of the range is projected at 3766.

Stay alert for my signals this week. If you are interested in live trading tomorrow, please drop me a quick email at info@BluPrintTrading.com so that I make sure you get an invitation.

A.F. Thornton