Interim Update – Morning Outlook for Day Traders – 8/16/2021

Since I just sold my long trade referenced earlier at 4466.50, I thought I would drop you a quick note and update you.

Today is a bit of a head-scratcher. Our macro sell signals will be negated if the market closes this high on the bar. It is unusual to see the market recover a 20 point gap down and then reverse to new highs. Nevertheless, it happens.

Also, wedges fail or barely reverse when the market is in a bull or bear microchannel, as it has been since the morning low on the 5-minute chart, which is what we see today.

Today’s behavior underscores having a good plan for day trading. I will share my notes later, but following my rules kept me in this latest long trade long after I expected to be holding it. Nor did I expect such a profitable day, especially in long trades.

From a macro perspective, the market is being led mostly by defensive sectors. Breadth is negative once again, just as it was Friday. So there is nothing to get excited about.

The best explanation I have for this unusual behavior goes back to the narrative. The primary issue for this market has been a reversal of Fed policy to something less helpful. Global turmoil over the weekend in Afghanistan, the Delta variant, etc., all work to cause uncertainty, putting a cloud over the economy. This takes the pressure off the Fed to raise interest rates or taper, which could have been the course they would take next week in Jackson Hole. We will gain more insight from the last meeting’s minutes on Wednesday.

However, regardless of what the minutes say, the situation has changed, and the Fed is likely to maintain its accommodative stance a bit longer than anticipated. That is the most logical explanation for today’s turnaround.

Even though investors are wading back in on this dip, defensive names are leading. So nobody is throwing caution to the wind quite yet.

A.F. Thornton