Afternoon Notes - 4/11/2022 | Archimedes Methodologies

Good Afternoon:

As it usually is on a True Gap, the first clue to the day was how the market managed the morning gap per Gap Rules.
After the price gapped down to our second support level at 4450, traders rejected every attempt to fill the Gap. The overhead spikes on the first few 5-minute candles look like cactus spines.
At that point, unable to fill the gap, you start the day with a clear, negative bias.
And since the next logical support below is the 50-day line (the only important moving average left standing), you can usually bet the market will find its way there, and it did.
So the market moved down just above the 50-day line and 4420 support and went sideways until the final hour of trading.
During the final hour, the market puked into the close, and our final support line at 4400, also the WEM Low.
It is never fun to start the week at the WEM low, but that is where we find ourselves in the shortened holiday week.
In normal circumstances, Dealers will defend the 4400 level for the rest of the week, but if they lose the battle, they will have to sell futures into the decline, exacerbating it.
Notably, Monthly Options Expiration is on Thursday this week due to the Friday holiday. We will evaluate the bias later in the week, but right now, it looks like 20% of the float expires.
Navigator Day Traders™ had two good trades today, one long and one short.
Now, let’s jump out of the day trading weeds, and see what today adds to the larger narrative.

As is evident in the two-hour chart above, today’s action breaks a head and shoulders topping pattern with a minimum measured move down to 4250.
We are once again trading below all the important moving averages on the monthly, weekly, and daily charts, including the 200-day line.
From an options perspective, we are now well below the Volatility Trigger, with increasing negative gamma along the way. This shifts the options bias negative with greater volatility (bigger bars and wider swings).
This time, the market is not hedged like it was in March. There were so many hedges on in March, that it created a lower boundary that caught the market. There are no similar hedges to catch the fall at this writing.
Investor sentiment is neutral – so it is not much help either way.
And when you look at volume on the daily chart, the green bars going up are a lot smaller than the red bars coming down. The relationship between the positive and negative volume indicates distribution and institutional selling.

So we carry forward in our narrative that this rally attempt has failed at the 62% retracement of the January to March decline – which is typicall where they fail. The intermediate downtrend has resumed and it will likely move down to retest the February/March lows. That paints the larger picture bearish. The rally higher likely had more to do with short-covering than enthusiastic investors.
We will expand further, but there is the possibility that the trendline coming from the March 2020 lows catches this fall, forming the right shoulder of another head and shoulders pattern, but this time a reversal to take the market higher.

So there is your hope for intermediate-term bulls. You gotta have hope, right?
For now, Navigator Swing Traders™ will remain in cash, and we will see if the opportunity presents itself on the green trendline in the chart above.

My advice to everyone is to buckle up. There is no precedence for our current situation, at least not in recent memory. Moreover, we are ostensibly in a Primary (3) wave down in Elliott Wave jargon, and those are the waves that try men’s souls. Wait, there still are men, aren’t there?

A.F. Thornton

Afternoon Notes – 4/11/2022

Afternoon Notes – 4/11/2022

AF Thornton

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Afternoon Notes – 4/11/2022

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