Navigator Algorithm – Buy Signal 2/4/22 / Cash Accounts – 50% SPY and 50% QQQ +5.25 % YTD / Leveraged Accounts -100% Cash +47.8% YTD
With the Consumer Price Index set to report on Thursday, expect some chop at the beginning of the week. The consensus is that inflation will come in around 7.3%.
Of course, since we can’t trust the government with any statistic these days, the headline number might understate the inflation rate until the market digests the details, just like last Friday’s bogus employment number. A legitimate drop in inflation (coming in below consensus) is unexpected and would boost buying. The market may significantly move in both directions until the picture is clear.
As pointed out in the Sunday night video, the context in cycles and sentiment allows for further rallying in the market. Mid-term election year seasonality also supports the rally after some chop:
The basic strategy is to work this next rally leg seemingly underway and see where it takes us. The Weekly Expected Move on the S&P 500 Futures gives us about a 200 point range from 4385 to 4586. We are using a break of Friday’s range (4438.50 to 4532.50) as our first directional clue, applying Balance Rules to the range.
As discussed in last night’s video, I am mindful of our elevated location along the 100-year market path and the downside inherent in this multi-timeframe channel top.
You should be aware of the risks too. Do not navigate this market without downside protection.
Here are the critical swing trade levels for this week:
Day Traders
I am anticipating another day of elevated volatility. Futures are flat to Friday’s close, near 4490. I will mark 59 points in each direction from the regular session open as my day range. Material resistance is at 4520, followed by 4554. Significant support lies at 4444 and 4390.
Today’s data points remain pretty similar to last week – but the contango in Vix futures may continue to act as a drag on market makers buying S&P futures. There is not a lot between 4500 and 4600 to drive prices in either direction. Past 4600, and positive gamma kicks in (supporting the market). Below 4500, traders are still likely to favor selling rallies rather than buying dips.
Overnight inventory is balanced and contained in Friday’s value area, and a triangle may be forming on the daily chart in what would potentially be an Elliott Wave “4” position. If so, the pattern would imply one more thrust higher. I am not an Elliott Wave fan, so I note the data point in my narrative.
The market is in a short-term balance for now. The extremes of the overnight range (4471.25-4507.75) may start to tip the scales one way or the other, with the caveat that doing so doesn’t get you out of the larger balance range discussed above (4438.50 to 4532.50). Today’s better play may be to wait for a move outside of the overnight range. Both the S&P 500 and NASDAQ 100 futures have poor highs from Friday, which means they will be easier to break than the lows.
Stay alert to all of your moving averages in the neighborhood. A lot depends on staying alive above the 5-day line and retaking the 21-day line. Support is at the 200-day line.
Be sure to review the Sunday night video at the top of the blog for context.
Good luck today and the rest of this week.
A.F. Thornton