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Navigator™ Signals for Day Traders

Mid-Day Update – 7/21/21

AF Thornton 0 Comment

First, let me highlight that internals have been reasonably strong today, and that gave me the confidence to go with some breakouts. Since breakouts fail 40% of the time, knowing your internals and whether they support the direction you are headed is important.

There was a breakout trade right from the open based on yesterday’s trading range. Double the range, and you have the measured move – which is right where we first stalled today.

Then we based for a while, almost leading me to believe that we would balance the rest of the day, but we did get another breakout from that range, and that breakout is retesting as I write this (another point to add to a position if desired). This breakout is also a breakout from the 30-minute opening range, which projects a much higher figure. Frankly, when the 30-minute opening range is that wide, I don’t usually expect it to double except on exceptionally strong days like yesterday (or weak as the case may be).

You can take long positions at the bottom of the range, but here you had two chances to buy at the 21-period line before the second breakout. I would not work (be short) the top of the range when our market internals are this strong. It would be best if you only were looking for longs on days like today. The range measured move still sits above us, as does the 30-min opening range projection.

There is a problem, however. As you will see above, we may have an ending diagonal (wedge) forming on the higher time frame 2-hour chart. It is pointing to the breakdown level from our last balancing area a week ago. There is a downtrend line there as well. The market may need a rest before it can make further progress. Perhaps it will form a right shoulder dip on a reversal pattern to go higher. 

By this time of day, I am typically done trading and will come back around 2 pm EST to see if there will be an afternoon drive trade. Otherwise, the tempo here has slowed to a crawl, and there is nothing that interests me. 

Many studies of traders find that most of them give back everything they made in the morning by overtrading the rest of the day. In part, this is due to the choppy nature of the New York and Chicago lunchtime and all that follows. Also, there likely is a degree of screen fatigue at work.

You see how detailed my notes can be as I go on through the morning. And you only see part of it. There is no way I can maintain that level of concentration for more than a few hours.

Money is continuing to rotate back to value and cyclicals. After two days, I am not sure this is still short-covering. So we may have another tradable bottom, or we may be in the process of defining a new, summer trading range.

Stay Tuned,

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook – 7/21/2021

AF Thornton 0 Comment

Everything I need to know about life I learned in Kindergarten, right? Remember that book? Lesson 57 – How is this one not like the other one? Compare and contrast?

Comparing recent lows is the central question this morning because this one looks just like the rest of them. So far, the market is emulating every other pivot off the 50-day line this year. And it presents the exact problem I feared Monday. We are out Friday, at least as to our sole, remaining 10% XLF position. Now, do we go back in? That is more of a swing than a day-trading question, to be sure, but it is quite the dilemma. 

Then there were the fund flows yesterday. Treasuries backed off their Monday blow-off climax. Value and cyclicals (including XLF) clobbered growth and technology. Small caps came back to life as well. My first inclination would be that the rotation I expected last Friday is coming a bit late off the liquidation break. The day after monthly options expiration is notoriously bearish, as is mid-month anyway. So the deferred gratification is explainable.

Yet, what if all of yesterday was just massive short-covering? I could see the shorts piling on the weaker value, cyclical and small-cap stocks and indices Friday and Monday, saying to themselves – this is finally it – the 10% to 20% correction. Why not short the weak sisters? More short positions to cover, so more gains yesterday? Maybe rotation, maybe not.

Acceptance is a huge issue in life, and particularly in trading. So do I accept that this is another gigantic “liquidation break?” Is it the beginning or end of something? Do we get the double-dip like May or the “V” bottoms like the others? Is this the 18-month cycle peak? This bottom looked more rounded than a typical “V,” but one must keep an open mind.

Then there is always this: how will the market screw the most people? Aha! We will make the dip look just like the others, draw them all in, then Whack A Mole! Do you see why I have preferred day-trading lately? How can anyone sleep at night worrying about that?

For day-trading, the decisions have been both easier and rewarding. I will take credit for calling the bottom Monday to the tick. I have to take credit when I can – as it makes up for the bad calls. And I had two good trades – pointed out in these pages practically in real-time. There was the short squeeze into the close on Monday. Then there was the Gap and Go that gapped and went per the Gap Rules yesterday.

I hope you don’t mind me sharing these thoughts. As I often say, the circus in my head would make Barnum and Baily envious.

Today’s Plan

Yesterday’s rally had a virtually perfect inversion of the bearish internals from Monday’s rout. The structure was very poor, with the market profile split into multiple distributions. This is normal on a day that is dominated by short-covering, which is an emotional event. While I’m not outright calling for it, note that most rallies off lows start with this type of day structure.

This morning we have a bit of divergence between the S&P 500 and the NASDAQ 100, with the latter trading negative and much weaker. This dynamic and the very balanced overnight inventory in the S&P 500 likely sets us up for some balancing and range day trading for today. When they negatively diverge, the NASDAQ 100 will draw gains from the S&P 500 and vice versa.

The action on Monday left a poor low at the bottom of the distribution. Carry that forward as in need of repair.

The outlook is more neutral in the bigger picture now as both the S&P 500 and NASDAQ 100 have rallied back to about the midpoint of the recent downdraft.

My signposts for potential change would be the ONH at 4338.50 on the top and the start of the single prints at 4303 on the bottom. Price action between these levels would indicate a balancing of yesterday’s one-sided trade. Price action outside of it gives us the potential for change.

Also, pay attention to divergence today. The spread between the /ES and /NQ is quite large currently coming into the open. If you are not sure which is dominant, wait as they usually sync later in the session.

A.F. Thornton

Navigator™ Signals for Day Traders

Pre-Market Outlook 7/20/2021

AF Thornton 0 Comment

I am struggling to adjust both from sea level back to the mountain elevation, not to mention a 10-hour time zone shift, so bear with me as I am exhausted and thus behind on some of my detailed charts annotating. I will have them later today.

Yesterday confirmed that the market has a tinge of normalcy left, as we finished the fifth down day in a row, broke the very short-term trendline, and bounced from a logical and important support zone. By the way, we might have just experienced the first consecutive five down days since the March 2020 China Virus crash. 

Support came from the gap and breakout area of the three-month consolidation from March to June in the S&P 500. So you have to ask yourself, what (if anything serious) has the market violated here? 

The answer is nothing yet, other than a retest of the last breakout coinciding with the 50-day line. And given the spike in volume, fear, and volatility, the market is perfectly capable of moving from here back to new highs if it wants to resume the intermediate trend. We may need a retest of yesterday’s low before the trend resumes in the next week or so, but we sit on that intermediate trendline and channel bottom now.

I would expect a few days of recovery back to the 21-day line to test it as resistance now that we sliced through it as support. My main point here is, no matter our opinion, and no matter how strongly I suspect that the 18-month cycle has topped, we have to keep an open mind to all possibilities. This market frequently defies any sense of logic, as one would expect with such aggressive Fed intervention. When I have an intermediate buy signal on the algorithms, you will be the first to know. 

Meanwhile, our job as day traders is to take advantage of the volatility. You do this by reducing position size and taking a bit more of a scalping approach to trades. You can already infer that yesterday’s low is now a critical line in the sand. This morning’s gap higher has buyers building on that low.

Pulling back to a wider view shows us that there is still a huge unfilled gap above us from yesterday. Opening prices are going to start the day within that gap. The market doesn’t like gaps, and gaps should fill. If they don’t, we have a When What Should Happen Doesn’t (WWSHD) moment, which gives us some important and objective Market Generated Information (MGI) to work with. Failing to cross the overnight high (ONH) today would be a sign of weakness.

Given the size of the gap above us and the fact that overnight activity filled very little of it, and we are currently well off of the ONH, it tells me that short covering may be already on the wane. Yesterday’s regular (RTH) session can be a very different animal from the overnight one, but those are the initial impressions.

Gap rules are in play for today’s session. The overnight inventory is 100% net long, so we know what should happen in early trade, which would be the corrective move. Early trade will tell us a lot about the nature of the short covering in the overnight session. A lack of early fade will mean that buyers are not done, and we should bias long, monitoring for continuation as we go.

Note that the ONL and settlement are almost identical, around 4254. That means that once all overnight longs are relegated to the “wrong” column, screens will go red around the world as well. I would bias short below that level. The RTH Low (4224) was poor yesterday and should be carried forward for a potential further short trigger as it needs to be repaired. I could argue that it is a weak low because it was a bounce from the 50-day line – a nuanced level for short-term traders.

Good luck today,

A.F. Thornton

 

 

 

Navigator™ Signals for Day Traders

Interim Update – 7/19/2021

AF Thornton 0 Comment

Can You Say Short Squeeze?

It took a bit, but the short squeeze finally gripped. Look, when you see the index basing around the lows and the put/call ratio high and rising, you know that these shorts are poorly positioned, not being rewarded, and likely to panic by the close. They often all head for the exits at once and buy to cover.

Today, it had to be especially difficult to hold the short on the S&P 500 when the index moved back above the 50-day line, usually strong support and an institutional money manager buy point. If you were short, there would be a lot going through your head with that in mind.

I rode two contracts into that high and covered with about 50 total points of profit. As to the market, I am not convinced that the correction is over, but more likely, it is just getting underway. It will zig and zig, giving us a lot of nice trades like this.

I will do the usual play-by-play in the Epilogue later tonight. It is good to be home and have nine screens again. Did I mention how much I love trading? If not, let me do so again now.

A.F. 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

AF Thornton 0 Comment

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

AF Thornton 0 Comment

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

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

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

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