Founder’s Trading Journal

• Not surprisingly (see yesterday’s notes), a short Gamma squeeze started in Globex on Tuesday evening / Wednesday morning, triggering a short covering signal for the aggressive Navigator Swing™ Strategy accounts at 3923.75 soon after the NYSE Open.
• The short-covering signal closed out the short-swing positions established on 8/16/2022 at 4302.75 on the index futures. 
• Each futures contract earned 379 points for a 440% gain per contact. Each SPY put option (.SPY220916P425 purchased on 8/15 for $856) earned $2350 per contract for a 275% gain. Conservative cash swing accounts that took the 8/16/2022 sell signal, but did not short the index, avoided a -7.5% index loss from 8/16 to today’s close.
• Always remember that shorting the market with leveraged futures and options involves a high degree of risk. Futures are especially risky as you can lose more than your original investment, at least theoretically. It would take a very extreme market event to lose more than you invested as long as you use stops.
• We issue the buy and sell signals, but it is up to subscribers to choose the instruments to implement them. Soon, we will offer a program that permits you to open an account with an independent broker that automatically mirrors our trades for you as we execute them.
• Of course, past performance does not guarantee future results. Also, our customer base cannot always immediately act on a text or email signal. Results may vary depending on when and at what price members complete their trades.
• We also issued a long (buy) signal for Navigator Swing Strategy accounts at 3923.75. We moved the stop up all day, ending the session at 3962.50.
• The retracement at hand could very well result in a short-lived whipsaw; we never know for sure. If the market heads south, support lies at the top of yesterday’s single prints (3946) and the candle midpoint (3956). You know where our stop is (3962.50), just under yesterday afternoon’s lows.
• As mentioned yesterday, the 3900 Put Wall was the inflection point to hold the market for now – even though the market dipped as low as 3883.75 in Globex. By no means do I believe that the market is out of the woods. Closes above 4100 are bullish. The zone from 3900 to 4000 is neutral. Any price acceptance below 3900 is bearish.
• This retracement has the potential to recover as much as 50% to 60% of the August 16 – September 8 decline, though I wouldn’t count on it. I still believe the market will dip into the Hurst Nominal 80-day cycle low, coinciding with monthly expiration and the Fed meeting (9/16 and 9/21, respectively). We will invest and trade accordingly.
•  I would apply the day timeframe reversal logic to swing accounts with the newly established long positions. And that brings up the plan for tomorrow – Thursday, 9/8/2022.
• Federal Reserve Chairman Powell will speak before the market opens, catalyzing what comes next. The only surprise would be some easy talk premised on Global economic challenges. I don’t believe the market expects this.
• Some follow-through gains are likely, as Powell’s hawkish stance is already well-known and unlikely to change. The market started the retracement rally because it was oversold – not because it expected sugar from the Fed Chairman tomorrow. More than likely, the retracement is a dead cat bounce. But the market has already baked in big bad news around the Globe for the short term.
• We have seen these short squeeze, rip-your-face-off bear-market rallies take us higher than one would expect, so I am looking for some follow-through buying tomorrow to retest 4000 and likely run higher through the stops above 4319. A move to the WEM high (4050) and 38.2% Fibonacci retracement of the 8/16 – 9/7 decline (4055) is possible by Friday.
• Keep a close eye on the 10-year treasury rate, which is still flirting with a new high. New 10-year highs could tank the market, but a peak in the US Dollar (DXY) might offset it. Let’s hope for a double top in the 10-year rate. 
• Junk Bonds (JNK) threw a nice, positive divergence to the S&P 500 the past few sessions evidencing some risk appetite. Momentum also positively diverged. Both actions often precede or coincide with important intermediate lows.

• Though not entirely clear, the market has either completed the first leg of the (3) wave down in the larger picture – or has one more thrust down to 3866 to achieve the first leg. Either way, we are in a retracement with a max target of 4055 for the rest of the week. We will continue aggressively raising stops on longs until we are comfortable that the rally has enough legs to widen the protection. 

• Day traders should watch for a pivot back down beginning at 4035. Longs might sell into any stop run above 4019 and go home.

• As always, I listed all key support and resistance in the table above – with the WEM and DEM sandboxes shaded. More importantly,  I marked the important clusters on the first chart above. 
• The levels help you know where to anticipate a pause or turn, but there is no substitute for monitoring the auction level by level to see where the price wants to stick or reverse.
• Price closed above the 5-EMA on the daily chart – a good start for bulls. But one day does not make a trend – especially with current volatility. Continue to keep an eye on the CBOE equity put/call ratio – but the shorts were already on the ropes today and likely unwound many positions. Yet, the sentiment is still negative enough to continue the rally – even if short-lived.
• Until otherwise indicated, the market is in its third wave down, arguably the cruelest leg of any bear market. But as we saw today, expect the market to wear you down before delivering the negative goods.
• I am still looking at an ultimate bear market target of 3000 before year-end, give or take a few hundred points.
• Don’t forget that all key levels reverse polarity when materially breached. Support becomes resistance and vice versa. The table above shows resistance and support when I published today’s Blog. Move the support and resistance labels as appropriate after the NYSE open. Anything above the current price is resistance, and below is support.
• Negative Gamma pressure persists – count on more. Dealers will continue to hedge their inventory by selling futures into declines, worsening the down thrusts. But this effect also works in reverse. Dealers must buy futures into rallies, making them stronger and longer. We call this behavior Gamma squeezes or spirals. Did you see this play out today?
• Heavy volume marked the lows these past few sessions, and the market experienced stalling (high volume with very little price movement) as it wedged into this morning’s low. Volume was above average on the sweep turnaround candle today, but it could have been better.
• Very serious global tensions continue to mount. Russian President Putin scolded the West today as he pointed out that the Ukrainian grain and food shipments, finally moving through the ports, were snatched up by the EU, with only two ships delivering food to developing nations. He called out the West for its selfishness and hypocrisy. If true, Putin might be right. Maybe Hunter was in charge?
• As mentioned before, we are experiencing a moment in time that requires us to prepare for the worst. It would help if you had a contingency plan for yourself and your extended family. 
• It is always advisable to have such a plan, with extra food and water on hand. But perhaps it is more important now than ever before.

A.F. Thornton