Category Founder’s Trading Journal

Another gap higher this morning, and gap rules normally would apply. However, today is weekly AND monthly options expiration.

Given the distance traveled yesterday and the fact we are at my initial target of 4450, there likely is an opportunity for the early fade.

From there, we usually see a lot of balancing on options expiration.

Next week is likely to tell us whether this is a one-hit-wonder or move up to challenge or at least tag the old high. I am betting on the latter.

Stay tuned for more details on the weekend.

By the way, I will formally name yesterday’s set up as the “Cradle Trade.” It will go in the glossary for future reference.

I don’t trade options expiration, so my next writing will be Sunday. Have a terrific weekend.

A.F. Thornton

I was up late battling the overnight Globex thieves who read yesterday’s post. The Founders Group went back to a 10% position using S&P Futures last night before our Globex cousins stole all my thunder. We intend to exchange the futures for a 25% position in at the money November 19th SPY calls today.

The market gapped open above all of the critical resistance identified in my last post. Now you see the setup I described working in real-time. Let the market settle in, and don’t chase it. Look for a dip on the hourly charts to enter.

I have no expectations for this rally beyond the 4450 target. We will see what they can do after that. And as I have said all along, when you break a 60-week bull microchannel, the probabilities are that you enter a trading range. A move to the all-time high is the most likely outcome before rolling over again.

And what lies ahead is a 20-week cycle low due later in the year – likely November. So we can look forward to that.

Meanwhile, enjoy the run, and I will keep you posted on trades. I will also keep you posted on what kind of leadership we see out of this run.

A.F. Thornton

We will open within yesterday’s range after a wild ride around the CPI numbers. Let the market settle in before taking any positions.

We went back to cash yesterday in our swing positions yesterday at the close, as our positions closed below the 5-day line stops and the SPX was trading below 4350 five minutes before the close, though it did manage to close above 4350 by a hair.

Key reference points today will be the swing low at 4317.25 and yesterday’s high at 4365. Anywhere in the middle, use a volume profile and/or vwap and assume responsive trade.

A.F. Thornton

If the cash S&P 500 index (SPX) is slated to close below 4350 in the last 5 minutes of trading, our stops will have triggered. Accordingly, the Founders Group will liquidate all positions for a small loss and move back to 100% cash.

We would place the Navigator Swing strategy back to 100% cash as well,. We would then treat the recent buy signal aa merely predictive of a brief short-covering rally.

Regardless of the stops, we will keep an open mind as developments unfold. We are still targeting the end of October/early November as the potential end of the correction.

It is a bit surprising not to see another attempt to test the top of the range before then, but we won’t argue with the market. If stops are triggered, perhaps the supply disruptions combined with vaccine-related labor dislocations are exerting significant and unanticipated pressure on the fundamentals.

A.F. Thornton

Recall that the gap higher last week triggered a Navigator Algorithm buy signal. However, given the market gapped to an overbought position, we have been using this pullback to establish our position.

So far, we established a 20% position in November 19th SPY (S&P 500) calls and a 5% position in November 19th XLF (Financials) calls by nibbling into the close of each of the last three sessions. We have targeted a maximum of 30% exposure, as it remains unclear whether we are positioning for a relief/short-covering rally or an actual reversal from a double bottom.

In one final trade to complete our 30% positioning for a rally leg higher, the Founders Group is taking a 5% position in IWM 222 calls expiring 11/19. The IWM is at 221.50 at this writing.

Because we are at the inflection point, we could still be selling everything by the end of this session because our stops were triggered. That is the nature of this type of positioning.

The first few hours were encouraging today as yesterday, but the market is back in sell mode at this writing.

The market continues to lean toward financials and energy as pressure on interest rates continues and inflation fears dominate. The IWM (Russell 2000) small-cap position we just established increases exposure to these areas. Moreover, smaller and medium-sized companies may be better poised to react to inflationary pressures.

It is essential to stay tuned today as our stops could still be triggered. We need prices to remain above their 5-day lines to continue to maintain long positions.

A.F. Thornton

The market closed right on our stop lines yesterday, dipped below overnight, and then came roaring back to go positive this morning. After the first hour, I will see where things stand to decide whether we add to positions or bail. What is clear for now is that there are sellers above 4400 and buyers below 4300.

The 80-day cycle launch has been weak thus far, with no follow-through. I am increasingly convinced that it may peak early with left translation, keeping the 18-month cycle in play. This also raises the possibility that the market may continue in a downward trajectory into late November.

Cycles or no cycles, the vaccine mandates contribute to supply chain disruptions as workers protest and outright give up jobs to avoid the jab. I cannot blame them. More and more evidence continues to surface that the jab is likely as risky as the disease itself and virtually ineffective against the Delta variant. The good news is that therapeutics are increasingly accepted and effective as the medical establishment slowly but surely emerges from its political fog.

Needless to say, this is a tough market to call at this stage. The overnight low at 4317.50 is the trapped door to lower prices. If 4300 fails, the market will show its ugly side.

The overnight high at 4365 is the door to higher prices and perhaps our target of 4450 or so. The roundie at 4400 must hold for the market to continue upward to establish the top of the trading range I have been expecting.

A.F. Thornton

The Founders Group is adding a 5% position in XLF at-the-money calls expiring on 11/19 in the Navigator swing strategy. The XLF price was $38.75 at the time of execution. In our case, we picked up the 39 calls expiring 11/19 39 at .94 each. This brings us to a 25% total invested position with the SPY calls.

Whether it is our SPY or XLF calls. we are using the 5-day EMA as our stop line. A close below that line, even for a few hours, would likely trigger our stop, and we will share our decision immediately on these pages.

A.F. Thornton

I was encouraged when Thursday and Friday held above the recent gap higher, but Globex traders filled it last night. They brought the market almost all the way back this morning, and Globex trading does not count for the most part.

Today will be about whether the market needs to retest the overnight low at 4355.75 or whether we can stay above it, which keeps us in the gap range. I would prefer that we close above 4376.25 which is Friday’s low. Price exploration below 4355.75 opens the door to lower prices and keeps the downtrend intact.

Watch behavior around the open for early clues. Profit-taking for the overnight crowd should be close to complete on their short positions.

Otherwise, nothing has changed in the big picture. New lows would mean that the 18-month cycle is marking down and July 19th was not the completion of the cycle. The initial target would be the 200-day line down around 4180 or so. Continuing higher would bring us to the top of a new trading range likely short of or coincident with the recent all-time highs.

A.F. Thornton

The Founders Group just added another 5% to its swing position in 11/19 Expiration SPY 440 calls when the SPY itself was trading at 438.25. This brings our total position to 20%.

Our target is 445 on the SPY.

A.F. Thornton

The Founder’s Group just took an official swing position in SPY calls at 439.88 at the time of execution. We bought 11/19 at the money 440 calls. We took a 10% position for now. Remember that the calls are leveraged instruments, and we are still a bit cautious here. For now, we will use a stop of 438.75.

A.F. Thornton