Founder's Trading Journal - 9/9/2022 | Archimedes Methodologies

S&P 500 Index Continuous Futures / Today’s Close – 4084 / +61.75 pts (+ 1.54%)

Originally Published Friday Afternoon, September 9, 2022
Updated Sunday, September 11, 2022

Navigator Swing Strategy™

Navigator Algorithm™ Trends

Navigator Trading Sandboxes™

Click here to learn about Trading Sandboxes and how they work. The table below lists the granular price obstacles a trader will encounter inside the expected move ranges. The colors correspond to the “DEM” and “WEM,” marking the range on the chart above. The DEM and WEM help us narrow our focus for the day and week ahead. We also included a few important price levels outside the range boundaries – for the less probable occasions when the price exceeds the edges.

To successfully navigate this data, traders need to monitor the price auction with volume profile histograms for the day and a cumulative profile aggregating the last 10-20 sessions. As price travels north or south from level to level, volume tapers off at reversal points, and the process begins anew in the opposite direction. Professionals call this “price discovery.”

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Founder's Journal and Trading Notes - Weekly Perspective

Below are a few relevant excerpts for today from A.F. Thornton’s trading journal. Check out the full notes with a Subscription, which also includes access to Mr. Thornton’s live charts in the Founders Trading Room. The full journal contains Mr. Thornton’s daily trading plan and reflections on his daily gains and losses.

References to “the Market” below mean the S&P 500 Index. The quoted numbers are from the front month E-Mini Continuous Futures Contract (now December 2022).

A few excerpts on the week and Monday's trading plan...

Apologies for the update, but a lot of the numbers needed to be footed to the new, front-month futures contracts. I simplified the charts a bit too.
The week ahead includes important retail and wholesale inflation reports (likely to be a yawn), with Quadruple Witching expiration on Friday. The options market gives us a 95-point DEM range for Monday and a 185-point WEM range for the week.
I think the Goldman Sachs trading desk best summed up my thinking on Friday. The pain trade is higher. The CPI matters little at this point – it is horrific no matter how you view it. The 4th Quarter performance chase has begun. And the question is – have you hedged your upside? Perhaps the rally has legs into quarter-end. Just don’t count on it.
Other than those non-economic motivations, why is the stock market rallying? I don’t pretend to know for sure, which is the beauty of relying on objective signals. Our job is to communicate the buy and sell signals to subscribers as the Navigator Algo generates them. We follow instructions and wait for the narrative to catch up.
Now our task is to wait for the next sell or short signal. It could arrive Monday – or six months from now.
Presently, the rally underpinnings lie in the dissonance between potential and realized risks. POTENTIAL risks abound, but the economy has not exactly fallen apart (yet), and unemployment remains low (for now). It is a slow-moving train until it starts downhill.
And a lot of cheap money is still sloshing around the system – even though it may not formally show on the broker-dealer order books. Traders are in front of their screens, just holding their orders off the book. If the money is not there, then who is buying? Where is the volume originating?
Sideline cash is historically high, as is the Street’s surge in buying downside protection (Puts and VIX Calls) over the past few weeks. The rally may reflect another FOMO match lighting the shorts’ pants on fire. Don’t forget that money managers face third-quarter performance music in a few weeks. And their performance this year leaves a lot to be desired.
And then we have that flight to quality thing with the dollar and geopolitical unrest. What an incredible advantage it is for our country to have the global reserve currency. It is sad that our leaders have sewn the seeds of its destruction.
And did you think about this rally explanation? Has the Orwell Administration saved a little juice for the November midterms?
As I have previously stated, the stronger the stock market is, the easier it will be for the Fed to hike rates again. Market rebounds are a gift. There are rumors of a full 1% increase at the next meeting. Yet, we know something will break eventually. We won’t be complacent.
Here is a thought: if higher rates aren’t reducing inflation (likely), maybe the Fed will raise their inflation target from 2% to 3%. It is the Fed equivalent of changing the definition of “recession” or “vaccine.”
Whether bullish or bearish, the angle of attack in the past few sessions is unsustainable. Price needs to level out for a few candles, or it will dive into a stall like an airplane with its nose too high. And even if this is a healthy turnaround rally, a retest of the September 7 low is probable – maybe on options expiration (9/16) or the Fed rate bump (9/21).
The market closed slightly above the previous week’s high, the 5-Week EMA, and the Key 5-Week Navigator Algo Trigger – positives, to be sure. Conquering the 5-month EMA and then the 5-quarter EMA are the next goals for bulls.
Friday’s price closed near the high of the day. Still, the volume dropped considerably from prior sessions (Wall Street’s last day of summer), and the price encountered resistance around 4080. But it conquered the 50 and 100-day lines, and the 50-day line is poised to cross above the 100-day line. These accomplishments trigger Commodity Trading Adviser (CTA) trend-following buys – and that is a big crowd.
Look, Friday might be a one-hit-wonder. If not – kudos to the market. Another pain trade punishes the weary.
Some bad hombres are in the S&P 500 4080 neighborhood, including the 50% retracement of the recent decline, a minor down trendline from June 16, our proprietary Trend Direction Trigger (the market closed right on it), and a macro low volume node on the cumulative profile. A low-volume node is like being in a valley. Does price want to climb the hill in front or behind it? See the histogram on the right side of the price charts above.
W.D. Gann, supposedly one of the greatest stock traders of the early 1900s, always emphasized that corrections geometrically link price AND time. We tend to expect crashes and capitulations – perhaps overemphasizing price. Yet markets can also resolve lofty valuations over time by moving sideways in trading ranges. Take a look at the chart below for examples.

100-Years of the Dow Jones Industrial Average

100 Years of the Dow Jones Industrials shows the two important types of corrections. The 1929 Crash was almost a pure price correction. It was relatively quick on the grand scheme of things, but extremely painful. Yet the periods from 1966-1983 and 1999-2013 linked time into the equation - moving sideways as the lower channel lines rose to eventually intersect price. Unlike a quick crash, the time element draws the corrective process out, perhaps prolonging the pain and frustration while also avoiding a 90% collapse like 1929.

In other words, the longer the bear takes, the less likely price will surprise us with a crash into the bottom or midpoint of its longer-term channel. Instead, the price moves sideways as its lower or mid-channel line rises to intersect with it. The time/price mechanism merits a separate discussion, but keep the concept in mind.
I am still eyeing the Descending Broadening Wedge formation on the daily chart. You might want to review this pattern again. A textbook formation would suggest that the price won’t look back from the 9/7 low.

Descending Broadening Wedge Pattern

Compare to Now

Thinking that the bottom of this bear could be in place is extraordinarily difficult to imagine. But in all my years with financial markets, I cannot remember a bear market ending when I was giddy or optimistic. The bear cannot end without a narrative for the world ending as we know it. Sound familiar?
But I still raise the potential of time and price combining into a long-term trading range to correct the current bubble. I have raised the possibility since January, when I first forecast what has now unfolded. The price objective of the descending formation pattern is the old high, not a new one.
I will pull up my climbing boots on Monday and follow the auction up the north slope or south as conditions warrant. Stay close to your email/text alerts for signals this week.
I am mindful that we are sitting on gains of 142 S&P 500 points achieved in only two trading sessions in the Navigator Swing Strategy. I know we should wait for the next signal, but I am not fond of returning gifts. Are you? Maybe we should exit or take partial profits on a whisper from the hourly strategy?

A.F. Thornton

*** At today’s close, readers and subscribers who chose to mirror the last Navigator Swing Strategy™ buy signal on 9/7/2022 have gains of $7125 per Emini futures contract (181%) and $708.00 per SPY call (63%). An investor could have purchased three calls at the buy signal point for roughly the same cost as one futures contract.

BluPrint’s business model for retail services is sharing the buy and sell/short signals generated by our proprietary Navigator Algorithms™ for the S&P 500 index. Subscribers can implement the signals with the SPY ETF, SPX or SPY options, S&P 500 EMini (and micro) futures, or a combination of these instruments as the context warrants.

Futures and options are leveraged instruments that involve high risk, volatility, leverage, and loss. They have different characteristics with comparative advantages and disadvantages. With leveraged futures, you could lose more than your original investment. Past performance does not guarantee that you will achieve similar results, nor do we.

A.F. Thornton is not a financial advisor, nor is he your financial advisor. He only expresses his opinion based on his experience. Your financial situation and experience may be different. This blog is for educational and inspirational purposes only. Your investments are solely your responsibility. You must conduct your own research.

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Founder’s Trading Journal – 9/9/2022