Category Founder’s Trading Journal

The gap-fill has morphed into a look above and fail per balance rules on the SPY and the DIA. We will take our stops at the market here. At least we tried, and we will try again if circumstances warrant. If you did a debit spread with us, you should have a slight gain due to the credit end of the spread. The Weekly Expected Move is still drawing the market down into today’s expiration at the close.

Navigator™ Swing Strategy – Buy on Dips to the 5-Day Line / Navigator™ Day Trading Strategy – Bias is Long – Looking for a Partial Gap Fill.

You will start believing in my magic after yesterday, if not sooner. The market must have read my script. It dipped right to the top of the Weekly Expected Move at 4675 (actually 4672), bounced, tagged it one more time, then went into a bull microchannel to close at a marginal gain over Tuesday. Of course, the price action was mainly inside the pinned range established after Tuesday’s (as yet) unfilled gap opening. In a sense, then, the market is still balancing at the top of Tuesday’s breakup candle.

Given the bullish recovery on Monday and Tuesday, I theorized that the market makers must have jumped to neutralize their deltas right at the WEM high, lest the market leaves them hanging again later this week. And I almost issued a nibble signal to start accumulating with them, but I am more inclined to buy below the WEM high and closer to the five-day line.

That reminds me – breakouts fail 80% of the time. We would need a breakout for any meaningful swing profit from 4672, and I don’t want to go through a drawdown first. Patience is a valuable commodity in this business. Remember that we always look for the “cradle trade” after the first run through the Navigator™ Algo trigger. And even with all of that, we might still be at the top of a new trading range.

And the Fed meeting announcement is now less than a week away. It seems insane to take any position before that meeting. Yet, they have already forecast a decision that seemingly would be the worst case. If the market is rallying, perhaps that means the market welcomes the Fed fighting inflation – though it will be difficult to avoid a recession as the Fed already blew it with their “transitory” nonsense.

If I am thinking about anything this morning, it is why interest rates are so low. With the short-term rates still close to zero and falling again, why would anyone find the rates acceptable? After all, if you bought treasuries a year ago, you lost money in real terms.

If you cash year-old treasuries, you can only buy 80% as many groceries, 70% house, 70% car, 50% gas, etc. An institution buys the sovereign debt of many countries, including the U.S., with balance sheets well over 100% of GDP. Sovereign debt levels, by any measure, are unprecedented at this writing.

Institutions all over the world are not dumb. The only reason I can think of as to why they would find negative “real” interest rates acceptable in this environment would be that they are more concerned about the return “of” their money than their return “on” it.

In that sense, then, would not higher interest rates be a good thing? Would they not signal a more robust economy? Less fear?

Swing Traders

We are looking to buy a “continuation” trade. But so is everyone else. We look to avoid a bull trap at these levels. We have a range of support from the Navigator™ Algo trigger at 4611 to the five-day line at 4655. Somewhere in that zone makes sense for an entry, fully recognizing that we could be buying in the middle of a new trading range. And that is the point now. This new market is more volatile. The easy times are behind us with the apparent shift in Fed policy.

Day Traders

I seriously doubt I can top yesterday. I still think the WEM high (now solidified around 4672) will be a magnet the rest of this week. I have seen the market balance a few points around it in the past, with the WEM high level in the middle. Looking to the left on the daily chart, we could see a similar, symmetrical, tight, range pattern form to the right.

Since the overnight action is inside yesterday’s range, use the overnight high around 4700 and the overnight low at the WEM high of 4672 as your breakout points today. The more time spent at the WEM high, the more market makers have the opportunity to hedge their unpleasant experience from Tuesday. A break of yesterday’s low at 4672 would change the tone back to negative – at least down to the five-day line at 4655 or so.

Capturing the hill at 4700 has been the battle of the century now since November 5th. Does persistence beat resistance? Perhaps if the Santa Claus rally is on tap. First, target the VPOC at 4715 if the market can poke above 4700 today. Then target the all-time high that sits 4740.50.

The cycles and seasonal patterns don’t forecast clear sailing until the 15th, also the Fed announcement day. And as we found out over the Thanksgiving holiday, seasonality may not matter this year.

Overnight inventory is net short, so a small pop near the open is in order while Globex traders take profits. I plan to mark the opening range and project it in both directions. When the range breaches, that will be your first clue. I would pick up two contracts.

Take your profit on one at the breach range target. Hold a runner if we have a solid break above 4700 and target the VPOC at 4715. See how it goes from there. On a short position, take a profit at the breach range and hold a runner if we start trading below yesterday’s low (also the top of the single prints) at 4666, with a final target in the 4655 to 4622 range. Look for a pivot from one of the key lines. The five-day, 21, or Algo trigger start at 4655.

A gap-fill starts at 4747.25. At the other end, the all-time high is 4740.50.

Good luck today. Stay alert for a swing trade signal.

A.F. Thornton

There is no rest for a trader -as the saying goes. I have been advising Swing Traders to keep their powder dry for the past few weeks, and the Navigator strategy has remained 100% cash. We have restricted our activities to day trading. It was not worth trading if we could not put it away at the end of the day. Today is an example of why we took this approach.

The Dow has been down as much as 1,000 points overnight, with all significant indexes experiencing a similar plight. Fears of an African Covid variant are driving the overnight bear surprise bar. And, of course, the hype arrives in the middle of light holiday trading. Go figure, right?

I don’t want to get into the latest Covid conspiracy and the ridiculousness of this latest fear-mongering. Put it this way, I understand the science behind variants, and it does not support these fears. But I don’t believe in coincidences either. The Globalists were beginning to lose the narrative—time to bring in ANSER. If you don’t know about ANSER, you should study up. They shape the narrative for the Intelligence Community and Covid.

It doesn’t matter the reason; there is always a catalyst to take down a vulnerable market. More importantly for us, the Navigator algorithm has given us multiple sell signals since November 8th, depending on the index. I have posted a chart of the Dow signals above.

Nothing at this location indicates that this should be anything more than a news-related flash crash. Maybe we could say that this is the Black Friday sale for the stock market. We have a half-trading day today, so it promises to be interesting.

The pleasurable nature of being in cash is that I don’t have to do anything today except lament if I miss the opportunity. My detailed comments, then, will be published Sunday afternoon.

I will leave you with this thought: if you cannot buy in these declines, when does it make sense to buy? Just don’t deploy all of your cash at once.

We have the mother of all Gaps this morning, so Gap Rules are on the table. The NASDAQ 100 is outperforming the other indices, confirming that the stay-at-home trade is still kicking. The NASDAQ 100’s relative outperformance also affirms the news-related origin of the decline.

I will be looking at everything over the next few sessions. Today, it would be necessary for the market to hold the overnight low at 4597 as a first test. However, bear bars like this morning do a lot of damage to short-term psychology. Don’t forget; there are a lot of newbies with weak hands in this market.

I will have some significant announcements on Sunday.

Stay tuned!

A.F. Thornton

I am out this week, as previously announced. Nevertheless, let me share a few thoughts.

Tech, particularly Nvidia and Tesla, have been carrying the water the past few sessions. So, the action has been narrow for a few days. The pre-holiday bias generally is positive. But a move to the bottom of the short-term range around 4640 or so is not out of the cards on the S&P 500 index futures. The uncertainty is best approached as a day trader for now.

There is a possible move up to 5000 on the S&P 500 as we approach year-end (for a brave swing trader). I would consider betting on that move from 4640, but I am not brave enough to take it here. Just note it in your narrative.

Overall, I see no big movement into risk-off assets except that risk-on assets are bordering on blow-off, parabolic behavior. We are likely on the verge of another rotation back into the XLF, XLE, IWM, and DBC. All of these have pulled back nicely, so I am watching for a pivot around their original breakout areas. We are not there yet, but these sectors and their leading names could be on your screens.

As has happened several times in the past year, the push/pull rotation between Nasdaq tech (e.g., QQQ) and the Dow type names (e.g., DIA) has left our core, S&P 500 index, somewhere in the middle with a slight upward slope. Also, at times, the rotation puts the S&P 500 into a trading range. So those are the possibilities for now.

If the current administration replaces Chairman Jerome Powell at the Fed with Fed Governor Brainard, it will cement the woke virus and leftist control creeping into the Federal Reserve, and many will find that frightening. I am not sure how the market will interpret this.

Clearly, a change at the helm does not help the case for lower inflation. On the other hand, the money spigots may keep on flowing until the whole monetary system blows – and there is a lot of money to be made as long as you are not the last one to turn the lights out. It will be interesting to see the market’s reaction to any change. No change at the Fed is status quo, and the market should continue its current path.

I ask myself as we close out another year from virus hell, what if the Left is right? What if you can spend as much money as you want because you hold the keys to the World Reserve Currency? They call it Modern Monetary Theory or MMT for short. It used to be just a theory. Now we will find out if it really works.

It is kind of a heads they win, tails we lose theory if you think about it. If they are right, they win and consolidate permanent power. If they are wrong, the system collapses, and they get to build it back better. Can you say, “Comrade?”

On that happy thought, let me convey my best wishes to you for a happy holiday week. Forget about the market. I will update you a week from today.

A.F. Thornton

Yesterday saw what I am affectionately calling the “Rickety Rally” continue. The rally from the swing low on the 10th kinda sorta has a rising wedge-like appearance – and could be the fifth wave before a larger correction in Elliott Wave parlance. Yesterday was rickety in the sense that market internals remained unsupportive, maybe even weak. And not many traders showed up, as reflected in the sparse volume numbers. It reminded me that next week is a holiday week, at least until the wokesters cancel Thanksgiving.

So with the few soldiers at hand in yesterday’s regular session, taking the hill at 4700 and near the all-time high at 4712.50 remained elusive. But they are likely to mount a couple of advances before giving up. Giving up brings us the double top that would confound swing traders here.

Anyway, it makes sense to pay attention to the hesitancy of this latest run from the 11/10 low. It could foretell a trading range ahead, or another of those slowly rising Gamma spirals that mirror an Ivy vine wrapping around a shallow sloping fence line. The fence is the top line of the weekly channel.

From the October low, it has been kind of like taking off in a jet from the John Wayne Orange County Airport in Newport Beach. There is that steep climb, and then they practically shut the engines off as the plane levels off to lessen the jet noise to the residents below. I always appreciated the noise abatement but still hated cleaning the black jet carbon off my patio furniture. The market is now in that leveling-off phase. But we need to be attentive to a stall warning, as with any good take-off.

Over in the bond department, they continue to work hard to turn the stock market music down. In other words, rates continue to rise. That should make some sense. If I have the numbers right, the 10-year Treasury pays 1.6%, and even the understated inflation rate reported by the government is about 6%. So that would make the “real” return on the 10-year about -4.4%. Is it any wonder that the stock market is parabolic?

What happens when rates return to market rates? Historically, the “real” rate of return is about 1% over the inflation rate. How long can the government keep these rates artificially low? For the last 40 years, rates have been falling from 18% in the late 1970s to below zero now. I think someone already coined the phrase “Think Differently.” That is good advice.

In short, savers are facing return-free risk in U.S. Treasuries rather than risk-free returns. Is it any wonder attendance at the recent auctions has been (shall we say) down? At the very least, it will be interesting to watch what happens next, hopefully on my big screen TV at a comfortable distance from the U.S. on a small island in Greece.

For now, Swing Traders need to keep their powder dry unless you want to sit in front of your computer all day, which makes you a day trader. You get the point. You have to be patient to deploy your capital at more significant lows, like October. If you are already in, it is perfectly acceptable to hold for now. But do watch for the double top/trading range possibility. Use hourly candles closing below 4667 as your stop.

I have given day traders the keys to the kingdom several days in a row if you execute on the key levels once the market has established its direction. We have been one-time framing higher on each daily candle since the 10th, regardless of how the candle finished. And no candle has finished in the lower half of the daily range. All of that keeps the bullish bias intact, but the last few candles have overlapped a bit more than the first few. So the yellow flag is up.

The 4667 level remains a crucial downside reference. As we have progressed, I believe that closing candles below that level raises the possibility of a double top underway, and at least a potential move back down to the swing low around 4625.25. The market would have to close below 4625.25 to affirm a double top and deeper correction. Carry the 4667 level forward in your narrative.

Overnight trading is balanced, with a squat profile centered at 4695, with the high at 4701 and the low at 4688.50. I think it essential to hold the overnight low. I won’t short if we start closing candles below it, but I go into wait and see mode. Closing candles below yesterday’s low at 4670 is something I would consider shorting, as it is only a hop skip and a jump to the 4667 line in the sand.

If we start closing candles above 4700, there is a trade up to the old high at 4712.50. You could use multiple contracts and hold a runner for a break up to new highs. I don’t know how far we will get today if that happens, but my ultimate target would be 4740 which coincidentally is the Weekly Expected Move high.

Good luck today. As an early reminder, there will be no updates during the holiday week next week.

A.F. Thornton

The market liked the October jobs report that came out this morning, so the blow-off run continues (until it doesn’t). We will open with a 20-point gap on inventory that is balanced to net long, with a new overnight high achieved in the Globex session. That usually means a tradable fade at the open, but the word “usually” is rapidly leaving the trading lexicon these days.

There is the potential for early fade per Gap Rules. As always, how the market handles the Gap is good market-generated information for the rest of the day. The former weekly channel top, which sits at the next roundie at 4700, is the only potential resistance above us. Roundies generally provide resistance, too, at least in the short term. And we will blow through the 3-ATR top channel band, a sign of a powerful but equally overbought trend.

But the Weekly Expected Move high at 4675 or so could pull the market back down out of the clouds before options expiration at today’s close. Moreover, we have a discernable five waves completed on the daily chart, perhaps indicating that this first run off the October lows is near completion.

In a blow-off, climactic run, anything is possible. I always wonder who buys at these levels, but people must be required to buy. Either they got short too soon and are covering, or they buy as part of a Gamma spiral. As I pointed out yesterday, the structure below us is rickety, and traders may need a parachute when the market reverses lower.

Recall that the next dip of any significance, something of the 3% to 5% variety, is due in late November / early December. Then the Santa Clause rally comes due. Can anyone say S&P 500 5000? Only time will tell.

My eye is squarely on the Russell 2000 (IWM) for a pullback buy to continue its breakout from a nine-month base. As it is another Friday hugging the expected moves, I will bow out today.

Have a great weekend.

A.F. Thornton

11:18: 465.60 is support.

If they break below and start closing candles below 464.75 would be the next target on the southside…

Still back after lunchtime…

11:00: Good thing for Stocks on the Move…

SPY is in float mode as usual – for now…

Back after lunchtime…

10:38: No change, they’re floating…

Back as needed…

10:09: Note update to the numbers on BLL from Stocks on the Move…

Still back as needed.

10:04: Took a little while, but nice trade on QRVO.

W did the deal…

IBM did the dance in front of the number, price stuck there anyway…

Nice trades this morning while the tape was floating…

Back as needed…

9:58: Now that the S&P is within about 30 pts. from the next big phat round number, we consider it – on the table at some point…

By Friday’s close?

Possible.

What takes that off the table?

Getting back below the gap left open from yesterday down around 464.75.

9:53: No change, they’re just floating…

They’ll put in some kind of a morning pivot from somewhere…

9:37: 464.75 is the only spot of interest from a short term perspective…

Above is no mans land…

9:32: Quiet at thte open…

Patience for an opportunity to emerge…

8:30: We’ll let em’ go at the open while in float mode…

The focus is on Stocks that are moving and able to provide opportunity for the morning session…

In looking at the market this morning, I cannot help but be concerned about the blow-off, climactic, and parabolic nature of what I see in many stocks, sectors, and indices across the board. Keep in mind that in such circumstances, the structure underneath the market is unsound.

That means that when the market rises this fast, there is not enough volume at price to catch a fall. On a volume profile, you will see what I call a lot of “air pockets.” The market will tend to fall through these “gaps” in volume fast. I call those liquidation breaks on a five-minute chart. But on the daily chart, the ride is unpleasant if you are long, no matter what you name it.

I would be cautious in holding longer-term swing trades here until we get a good break and begin to repair some of the underlying structure. Repair means that we get some solid volume at these price levels to convince us that the institutions are interested.

Stay tuned,

A.F. Thornton

1:47: The market is in a holding pattern…

If she moves and creates an opportunity before the end of the day (with enough time left on the clock…), I will comment accordingly

Otherwise, if she doesn’t move…

We’ll see you in the video tonight…

1:36: As for the SPY…

directionless floater on light volume – still…

1:35: A word on the Transports…

We all see the crazy move the Avis had – doubled in a day…

Hard to believe, but it does seem to be the culprit for the move higher in the index.

However, if you look at IYT which is the exchange-traded fund that tracks the index, it’s a real representation of what the transports are doing…

Translation, the index has a flaw that will now be addressed.

You’ll hear about (or not hear about it) in the next day or so…

12:55: Update…

No man’s land, waiting on the Fed…

A floater with the trend on all time frames is the dominant thing…

Just sayin’

Back as needed…

10:50: Not much to comment on in terms of the SPY…

They’re in no man’s land around 461.50…

Just floating…

Back after lunchtime…

10:32: After an hour we’ve got about 10 million shares traded in the SPY which is on the lighter side of very light…

They’re floating in a chop shop formation…

Waiting on the Kabuki….

Back as needed…

10:17: 460.73 against the support at 460.75 and the bounce…

Funny how that works…

10:08: Of note…

The transports are up over 5%.

Looking at the individual components, they’re not up like that….

Interesting for now….

10:07: 461.43 high so far against 461.50.

Remember – 460.75 is the short-term pivot or line in the sand for higher or lower prices…

10:02: From a very short-term perspective, 460.75 is support.

Below that and the door opens for 460 give or take…

It’s quiet and they’re floating until they find a morning pivot…

460.50 is a pretty good spot….

9:50: It’s not easy in no man’s land, but from where I sit, they’ll likely get to 461.50 give or take…

9:42: Around and at new highs is no man’s land…

We just let the SPY go until she shows a storyline…

9:37: SPY just pushing a little, but it’s very light volume and no conviction…

They’ll go back and forth…

460.75 was the official completion of the inverse from the video…

Of note…

9:33: So far, nice trade on MOS…

SPY quiet…

9:00: The pre-market activity has been rather quiet…

“Waiting on Kabuki?”

We come with no preconceived notion. Instead, I have an open mind for whatever Mrs. Market wishes to provide…

We’ll let em’ go to get a handle on the early storyline…