Morning Notes – 5/31/2022

Good Morning:

• Futures have pulled back to 4124 at this writing, down from Friday’s highs of 4202.
• The shift over 4100 has reduced volatility estimates, with the implied move for today now at 1.07% or about 44 points plus or minus the open.
• Not that these estimates have turned out to be accurate lately, as realized volatility has been higher than implied volatility – outside the 68% statistical boundary.
• I expect resistance at 4135 (the current Volatility Trigger) first, then 4150, and finally 4200.
• Any sustained acceptance of prices above 4211 is bullish and builds the case that the recent low is more than a pause in the bear trend.
• Support today comes in at 4115 (SPY 410) to 4100. Below that, there is a gap of 4000.
• There are many times that I envy the Dealers and Market Makers with their inside knowledge of the book and virtually guaranteed profits, but Friday was not one of those days.
• The professionals lost billions when the market tilted higher halfway through the session, ending the week at nearly twice the expected move high.
• We also had a chance to see why my weekly/daily projections have a 68% probability of being correct – while ordinarily accurate, and they are not 100%.
• This week, the options market is pricing in a WEM estimated at 100 points plus or minus Friday’s close for a total 200-point range roughly between SPX 4050 and 4250.
• Was the parabolic move higher a surprise last week? It shouldn’t have been, not if you are following these pages. As we have been pointing out for several weeks, the street had been nearly 100% short with improving internals.
• Notably, and other than 4200, new call positions are still lacking, and the rally was not supported by the kind of volume we would typically expect.
• Nevertheless, bullish sentiment had dropped to nearly zero, and many signs pointed to an intermediate low, including the Navigator Algorithm Swing Buy signal last Monday.
• If nothing else, all one had to do was follow Gap Rules on Thursday and Friday for some nice gains, and our Subscribers did. Consider a subscription as it more than pays for itself.
• Subscribers picked up nearly 175 S&P points on Thursday and Friday alone, and an equivalent move in the NASDAQ 100. We used 50/50 SPY and QQQ June Monthly Calls for the positions.
• Of course, a lot happens overnight that we missed, leading to those morning gaps, which can be frustrating.
• We will work off some of last week’s gains at the open today from all appearances. But as the last trading day of May, there will be window dressing which could distort day trading.
• I suspect that month-end will lead to some buying in the cases where money managers missed the rally. Remember our old friend FOMO?
• So other than a short-covering rally and oversold bounce, where does this rally take us? Is this THE bottom or just A bottom?
• Of course, nobody knows, and there is no shortage of opinions.
• We will encounter considerable resistance around current levels and up to 4220. But I could even see the rally take us up to 4300.
• Beyond 4300, I have my doubts. However, I let the price action and algorithms guide me, as you should already know. Strong opinions tend to lead to losses in this endeavor.
• Increasingly, investors will focus on the June 15th Fed meeting and quadruple options/futures expiration on June 17th.
• Even if this is the end of the correction, I would not be surprised to see a retest of the recent low at 3800 in the S&P 500 index into the mid-June Fed meeting.
• Chairman Powell meets with President Biden today at Biden’s request to discuss the economy and inflation. Can you imagine the uproar if Trump had a similar meeting with Powell in similar circumstances? The left’s hypocracy knows no bounds.
• I don’t see any Fed speakers scheduled today, which should help the bulls. But Consumer Confidence comes out later today. Similar readings to those expected have led to recessions 100% of the time in the past – no exceptions.
• A few months ago, Canadian Prime Minister Justin Trudeau seized the financial assets of his political opponents, a group of harmless truckers who were the equivalent of “Trump” supporters in Canada. Now he is coming for Canada’s handguns.
• The actions of this Davos devotee and Chinese President Xi worshipper, less than a few days after he returned from Davos, are frightening.
• Combine Trudeau’s actions with his worship of Chinese President Xi and the Chinese Authoritarian system, and there is a frightening reality gripping our neighbors to the north.
• President Biden is coming for your guns too. And it is not just AR-35s; he also wants the 9-mm handguns.
• Recall that there is more than one way to skin a cat.
• How do you get around the First Amendment’s prohibition on censorship? You make the Tech companies do it for you,
• How do you promote the dubious science of Climate Change? You price people out of oil and gas.
• How do you outlaw guns? You price people out of firearms, outlaw bullets, chip away at it with red flag laws, etc. The left knows no bounds.
• Anyway, I will have a lot more to say about all this in the monthly/weekly report coming out later this week, including China’s plans to take Taiwan and possibly land on the shores of California.
• Indeed, you cannot make this stuff up. I feel like Mad Max arriving at the Thunderdome.

A.F. Thornton