Navigator Algorithms – Buy Signal 4299 – Cash Accounts 100% Long/Leveraged Accounts 100% Cash
YTD- S&P 500 -4.9% -Navigator S&P 500 Index Cash Accounts +5.8% – Leveraged Accounts +49%
We had made so much money so quickly from our Friday entry point (almost 50%) that I took profits at about S&P 500 4515 at the open yesterday on leveraged accounts. I advised cash accounts to stay put. I was a little early on the leverage account exit, but being late can be unforgiving in this endeavor. The market has now hit the Weekly Expected Move high and is in the reversal/resistance zone we discussed lately.
In theory, we should be looking for another entry point to go long on a dip for the leveraged accounts. As I mentioned yesterday, the groupthink about another leg down might be getting too popular for comfort. The forecast could be correct, but the price action has yet to confirm.
You can consult every algorithm and indicator in the world, but the best vote about what this market will do is the price action itself. In other words, if it is raining and the weather forecast calls for sunshine, at some point, you better put on your raincoat.
So, where are the bears? The market surged into the final hour and closed slightly above yesterday’s morning exit price. After the close, Advanced Micro Devices and Alphabet (Google) surged on strong earnings results, while PayPal plunged on a miss. The positive tech earnings have the futures market green this morning, with tech boosting the rally. Meta Platforms (Facebook), Qualcomm, and Spotify will report after the close today.
We now have three solid bull bars behind us, plus a follow-through day, all in an environment with a remarkable spike in bears on the AAII sentiment survey putting it in the bottom 1% of historical readings. However, that’s not the only bearish survey as the AIM Model bulls are now below 5%. After other weeks in the bottom 1% of historical readings, the S&P 500’s forward returns were well above average.
Also bolstering the negative sentiment, small options traders bought a record number of put options and spent a record amount for the privilege of protecting their portfolios last week. As a percentage of all volume, hedging activity was high last week. Historically, that has preceded a bounce with good consistency. We saw this in the put/call ratio spike discussed last week.
So let’s see how it goes in the resistance zone today. I will let the price action guide us.
Day Traders
The market will open with a large gap on yesterday’s spike, so both spike and gap rules apply. With overnight inventory 100% long on top of the spike, an early fade and profit-taking are likely.
The solid overnight activity has the market opening above the 21-day (mean). Conquering the 21 is noteworthy if the line is sustainably retaken. A weaker market would have immediately rejected there.
The downside fade target is yesterday’s high at 4541.75, but be on the lookout for only a partial fill (gap rule #2).
As to Spike Rules, we are opening above the spike, which is the most bullish outcome. If there is selling into the spike, the price could move to the base at 4515.25. How prices act within the spike will tell you a lot about the power of the bears today should they show up.
The action above the overnight high at 4580 has potential for further gains. But this could be tricky with the resistance above and the structure below.
A.F. Thornton