Founder’s Notes Update – 3/7/2022

Per the morning notes, the S&P 500 approaching the Balance Area low at 4275 changed the tone back to bearish. Equally damaging to the bull case, the price could not get through the 5-day line or the Volatility Trigger on the first 5-minute bar. The price has fallen below the Balance Area low – which triggered a short signal for subscribers.

Unless price rebounds back into balance, which would be incredibly bullish, the slow drip down continues as the algos tune back into negative gamma spirals associated with put buying.

Downside targets are the overnight low at 4238, then the Put Wall and Weekly Expected Move low at 4200. Breadth is not terrible, so the decline is attributable to big cap tech, financials, communication, and consumer discretionary – heavy index weightings all.

Per Balance Rules, the balance break implies a move typically double the range. The figure here is 139 S&P 500 points pointing to 4136, which would nearly be a retest of the 2/24 low. We are early enough in the week that the WEM low could breach and still return to 4200 by Friday. We have seen that movie before, so don’t automatically assume 4200 will hold.

But the market would need to get through the Put Wall at 4200 as well. So the double dose at 4200 has the potential to give us a pivot.

I was surprised this morning, as I expected more strength around the Open given the nearly complete recovery of the overnight spike low. But that is also why I advised you to trade later rather than earlier. There was nothing formal this morning to help guide us at the Open.

On a separate note, it does not hurt to track the Fibonacci levels from the 2/24 rally. The 50% retracement at 4261 failed to hold, and the 61.8% retracement is at 4223. The bear’s hand improves on a breach of 4223. And a full retest or worse becomes more probable if 4200 fails to hold.

The Founder’s Group will cover half of our shorts at the 4238 overnight low. We will hold a runner with a tight stop down to 4200, where we will reevaluate.

All you need to do is follow the morning plan to achieve similar success.

No predictions – we have to wait and see what happens.

A.F. Thornton