Founder's Trading Journal by 0 Comment Door Number One... S&P 500 Index Futures Daily Chart - Reversal Up? Door Number Two... S&P 500 Index Futures Daily Chart - or Reversal Down? Good Morning:Balance Rules will be tested this morning, as yesterday’s decisive rejection of the 3975 Price resistance disappointed the bulls. For our flagship trading index, the S&P 500, the Balance Range is roughly 100 points between 3800 and 3900.The top of the Balance Range is 3912. Our risk today is that when price breaks out as yesterday and then falls back into the Balance Range, it typically goes right back to the lower end of balance (3800). See Balance Rules.But the Daily Mean and/or FIve-Day Stop Line could catch any fall into 3895. And that leaves us with a bit of a opportunity. We have a simultaneous break-out retest of of the Balance Range high around 3912, and both Mean and Stop Line tests just below 3900. Will buyers show up on these pullbacks?The Founders’ Group views this zone between 3895 and 3912 as a low, risk to stop entry zone, even though failure at the zone calls for a 100-point sell-off. The key is the right stop to prevent joining the full decline if the tests fail.. So the Founders’ Group will add to the Navigator Swing long position if price reaches the entry zone, setting a one or two ATR entry stop. We won’t lose very much if the trade fails, and we could take the failure as a short signal with the aforementioned 3800 target.As planned yesterday, the Founders’ Group scaled back to a runner (small position) for the swing strategy when price reached 3975. We will handle the runner the same way we handle adding to the existing long position in the buy target zone. If our stop triggers, it triggers on the entire position and we can either short or go to cash.If the Balance Range holds, price will likely test 3975 above one more time. If that level is conquered, price can potentially reach up to 4025, a 2.618 extension of this rally’s seed wave. Given that the Balance Range is 100 points, a successful retest projects a 100 point measured move up to 4012.On the down side, If 3800 is realized, the topping pattern identified yesterday morning takes form and the bears have an edge. See the Door Number Two second chart above. The topping pattern’s measured move down is 200 points or more, and likely the October 2022 low (3502). If some doomsayers are correct, it could get even worse.Recall that from an Elliott wave perspective, the bears still argue that we are in a draconian “3” Wave down. S&P 500 Cash Index - Current Elliott Wave Count. Source: Daneric Elliott Wave The bear case lines up with the anticipated cycle lows slated for February, and perhaps forms a double bottom with last October. On the other hand, the rally leg we are in now could peak high enough that the February cycle low comes in higher than October.And so, relatively little has changed since mid-December. Look for resistance at 3912, 3975, then 4000. Support is at 3850, 3815, and 3775.Our first potential reversal date on the year is Thursday – January 12th. As always, the direction of the turn depends on whether price rises or falls into the date. S&P 500 Cash Index - Potential Turn Dates - Favor the Turn Dates over Price Amplitude. Source: @fiorente2 As for this week’s remaining catalysts, the Consumer Inflation Report comes out on the morning of our Thursday turn date. Friday’s action will see release of the University of Michigan Consumer Confidence Report. U of M will also release its inflation survey Friday.With such important reports looming, we may not see the price trend until the reports are behind us. And lest we forget, 4th Quarter 2022 company earnings fun starts next Week.Today is the last day I will be in the Trading Room as I have several days of travel ahead. For now, the Navigator Swing Buy signal is holding and we will follow the plan above, subject to new information or intervening events.As always, do your own homework as our approach and decisions may not fit your circumstances. We accept no responsibility for your decisions. Keep in mind that we make a lot of interim decisions between these writings that may not be timely communicated in this Blog to non-subscribers.A.F. Thornton
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