Reminiscing - 10/19/2022 | Archimedes Methodologies

Good Morning:

Today is not the first time I pulled my head up from my computers and rejoined the real world. Where have I been? – I always think to myself. It reminds me of finals week back in college. Law School was worse – with 100% of your grade dependent on one, final test.
And I am a little punchy after working three days straight with little or no sleep, helping a friend with some legal issues, my old wheelhouse.
There is so little time to reminisce, as this trading thing can swallow you whole.
And then it struck me this morning – 10 months into the year. It was the date today that triggered it. Today is the 35th anniversary of the 1987 stock market crash. It seems like yesterday.
The crash anniversary also meant that I had forgotten another important milestone. I forgot that this year is also the 35th anniversary of my leaving the comfort of a large law firm as a budding securities attorney. It was the year I stepped into the fray of the banking and money management world.
It is not like forgetting your anniversary or your wife’s birthday. But it is still crazy that I forgot.
It was April 1987 when I took the plunge. I started an investment advisory firm that would eventually grow into a bank, trust company, brokerage firm, hedge fund, and family of common trust funds.
But at October 19, 1987, the new company had barely started.
I remember sitting in the barber’s chair in Scottsdale, Arizona, on that fateful day – October 19, 1987 – as the news came over the radio that the Dow had dropped 25% in one day.
All I could think was, “smart move, you idiot.” I imagined the groveling I would have to do to get my old job back.
Everyone in the law firm was always talking about how bad the law profession was (which is true) and why they needed to leave. The grass was always greener on the client side.
We saw our clients as “stupid” – but making so much money! “I can do that,” we would naively pronounce. Look at my pedigree! That loudmouth, uncouth client never even graduated from high school.
You see, lawyers both envy their clients and live vicariously through them. Who you were as a lawyer depended on who your clients might be.
We had some big clients, and I worked on the first Mortgage Backed Bonds that utimately took down the financial system in 2008. My life has been kind of like Forest Gump. Lots of serendipity.
But having your worth defined by your clients reminded me of being in high school, defined by my parents instead of my own accomplishments. I wanted neither to be defined by my clients or my parents (another story).
And lawyers – the puffy know-it-alls we were – always want to give you business advice – like they ever had any real business experience! Worse, we billed them for it.
And those who did leave the law firm for the other side usually failed and returned in defeat.
And that always gave a sense of comfort to those who stayed behind.
And in my psychotic mind, I suspected the crew back at the firm was waiting for me to fail too. It is just how it is – human nature – not like the old gang was evil or anything. In fact, they were very supportive.
But I left because I decided if I were to put in 2000+ billable hours a year, it would be for myself and my family, not as a grunt on someone else’s gravy train.
But when I look back, I now realize that I left because I was too stupid to know better and know what any entrepreneur truly encounters in the real world. Ignorance is bliss, as they say.
These thoughts raced through my brain on that fateful 1987 day, as I contemplated my first business failure in the barber’s chair. I was still young I thought – only 28 and time to recover.
In retrospect, the good news was that I had very few clients, and they owned mostly municipal bonds. I have been blessed many times in life.
The other good news was that everyone else’s investment clients were unhappy. The clients were looking for a new, pretty face. Unhappy clients were ripe for the taking back then, and I still had a pretty face and an unblemished track record. Well, sort of pretty anyway.
The moral of the story is that there is always opportunity in adversity, and maybe your first impression will be wrong.
Life went on, and I comfortably retired at age 39.
But I could not know the future on that fateful day, and I swore there had to be a better way to manage money than to watch your investments decimated in crashes or bear markets.
Born skeptical, I always figured someone knew in advance and likely made a fortune. I wanted to find out how they did it.
That day birthed the Navigator Algorithms that you see on these pages today.
I had one more bout of market failure after 1987 that nearly ruined me financially, physically, and emotionally. So the journey has never been easy. I am saving that story for the proverbial book.
And, like many of us, my life has never been easy or normal. But I will save that for the book, too.
There is much talk of a crash even now and possibly next week.
Those that add astrology to their investment work say that we are in a so-called “Dark Window,” similar to 1987.
The Dark Window is a rare alignment of planets that have been present at every stock market crash in history, particularly 1987 and 1929. That window opens this Friday and lasts for a week.
One of my favorite websites in the world is SpuriousCorrelations.com. Head over there if you ever need a good laugh. They site many “spurious” correlations and coincidences.
So is this planet alignment thing just a spurious correlation, too? And I know that there is hidden order and math in the Universe – it drives the success of our algorithms. I discovered these equations nearly 20-years ago.
So before we completely dismiss the “Dark Window” theory, and for the most part I think we should, take a look at the chart below of the cycle of full moons overlayed on the daily S&P 500 chart:

S&P 500 Continuous Futures - Full Moon Cycle Lines

Coincidence? Maybe. But then there is that Mercury alignment thing:

S&P 500 Continuous Futures
Cycle Lines Where Mercury Aligns with Earth and the Sun

Do the “Dark Window” people have a point? I suppose we will find out next week.
Am I saying that I incorporating planet alignments into the Navigator Algorithms? Well, I guess that has to remain proprietary, right? Now he has lost it, you think to yourself as you laugh out loud. I digress.
For now, you will see from the first chart above of the 1987 Dow Jones Industrial Average that the crash bounced from the 200-week line, just as our market is doing now. And 1987 was a full-blown crash – not so orderly as our bear market.
And I am also reminded that Black Swan events trigger crashes, which are as rare as Black Swan events. But I would be the first to admit that plenty of Black Swan events are circling.
And my best guess is that we are in the eye of the hurricane right now – between the defeat of Ukraine and something starting in Taiwan. Earnings have been surprisingly good in some cases, and interest rates could be peaking – at least for now.
But we don’t want to endure a crash. In 1987, prices did not find acceptance above 1987’s peak until 1992. I am too impatient to live through that.
Five years is a long time to get your money back – especially if you plan to retire in 1988.
And the period between the 1929 peak, and 1955’s final acceptance of prices above it, was equally long and miserable.
Nor does the eventual recovery of these crashes include the thousands of people who sold at the bottom. That is human nature too.
But I am as confident as I can be that after 35 years of development and tweaking, the Navigator Algorithms will keep us out of harm’s way.
For now, short-dated options are bringing us a lot of volatility. Almost 40% of yesterday’s SPX volume traded in yesterday’s expiration. Traders are using options as futures substitutes, as many firms recently raised margin requirements. That happens near the bottom too.
With monthly expiration fast approaching on Friday, there is huge open interest at the Put Wall at 3600, the mid-price at 3700, and the Call Wall at 3800. The price will become sticky around these large, open interest strikes until Friday.
We opened around the 3700 strike, and I view that level as the key to holding and still completing the leading diagonal pattern pointing to 3800 and highlighted in last night’s video. S
o 3700 or so is a good place for a stop, give or take a few points. Then one could step aside until after Friday’s expiration if the stop is triggered.
And for now, the 3800 or so target remains if the market goes on to complete the pattern.
So, major levels are little changed from yesterday. We see resistance at 3757, then 3800. Support shows at 3711 to 3700, then 3651. For us, 3700 must hold to stay in the swing trade.

I will enjoy my 35th anniversary today of entering the most difficult and rewarding endeavor I have encountered in this lifetime – trading in the equity markets.

Of those who start to trade for a living, few complete the journey successfully. For me, it was all about dogged determination. I am a plodder and work harder than the gifted ones to earn my A’s.

And make no mistake, this journey had many dark and bright days, weeks, and months. Losses are the tuition you pay for this education.

But I am still here, sharing my experiences with you. I hope, in some small way, it helps you with your trading journey.

A.F. Thornton 10/19/2022

Reminiscing – 10/19/2022