Archives October 2022

Interim Update – 10/31/2022

S&P 500 Continuous Futures - Navigator Algorithm Status
S&P 500 Continuous Futures - Navigator Algorithm Status

Good Morning:

  • I will be brief this morning, saving most of my bloviating for the end-of-month discussion.
  • Futures have pulled back to 3885, consolidating Friday’s large gains.
  • Our Call Wall jumped higher to SPX 4000 and SPY 395. For a change, the options market is supporting higher prices.
  • Accordingly, I see 3900 providing some resistance into Wednesday’s FOMC, with 3950 as the more formidable obstacle. Support shows at 3850 and 3800.
  • The nominal 20-Week cycle (currently averaging about 16 weeks) and the 10/13 Navigator Swing Strategy buy signal have generally supported buying dips and selling rips on the hourly charts. 
  • However, price is in its third push higher from the 10/13 swing low, so we advise caution. A 1/3 to 1/2 retracement of the rally off Wednesday’s Fed announcement would not surprise me before the market is in a position to move higher, if at all.
  • After that, the next intermediate upside target is 4100 or so. If this rally fails altogether, the downside targets are unmentionables.
  • Either way, the next important market turn (from whatever direction precedes it) will be November 7th around noon EST.
  • The last entry for the Founder’s Group was Thursday during Globex at 3685, which we liquidated Friday at 3915 at the close. We did not communicate this trade publicly since it occurred in the overnight session.
  • As today is month-end and Wednesday is the next Fed announcement, we prefer to be in cash until Wednesday’s Fed announcement. 
  • From a day trading perspective, there is not much to do today with month-end cross-currents, though there should be some decent day trading tomorrow as the street positions for the Fed announcement.
  • We have a PMI report this morning, so be careful at 9:45 am EST if you choose to trade. Another Dallas Fed Business Manufacturing Index report is due at 10:30 am EST.
  • Bear markets don’t end until the generals fall, and they took a big spill last week. 
  • Look no further than the FAANG stocks, such as Google, Amazon, etc. No doubt that new leaders and acronyms will emerge in the recent bull market in the future.
  • Further evidence of the strength of the Nominal 20-week cycle appeared when the market shrugged off the earnings disappointments.
  • Fundamentals tend to take a back seat to cycles most of the time. When the cycle bottoms and unfolds, the press finds the news to explain it, not the reverse.
  • Much will be the same for the Fed meeting. I do not expect Powell to be dovish, especially in light of the strength of the current rally, which permits him to continue his tightening path. 
  • It would be different if the stock market was tanking as we approached the meeting – but it isn’t. That is the problem that seems to escape the crowd’s attention. The better the stock market, the easier it is for the Fed to normalize interest rates and sell off its balance sheet.
  • My important intermediate and short-term cycles bottomed on 10/13, but the 18-month and many longer cycles are unresolved. So enjoy the reprieve – it may be your last chance to cull your holdings before the final leg of the bear presents into the spring.
  • At this point in other secular bears, the market rallied for 6-9 weeks from the equivalent of our October 13th low. Then, the biggest leg of the bear unfolded.
  • If that is the case, we can observe that 90% of investor losses came in the last 10% of the bear. So we will keep that in mind as we move along.
  • Having said all that, it doesn’t pay to hold strong opinions, and I don’t; the price action will tell us what to do if we are willing to listen. If this turns out to be a “cyclical” instead of a “secular” bear – it is over.
  • We follow the evidence wherever it leads us, which is why our returns exceeded 600% this year.
  • Perhaps there is an advantage to my legal pedigree after all – I follow the evidence and build a case.
  • This week, I will be in the Trading Room Tuesday, Wednesday (for the Fed announcement), and Thursday. We will broadcast Tom in the room starting at 11:30 am EST today and Rose on Friday. Tom will be live trading order flow, an important aspect of day trading. Rose will teach price action trading – the primary foundation necessary to succeed in this endeavor.

A.F. Thornton

Interim Update – 10/27/2022

Good Morning:

  • Futures were flat to 3850 ahead of the 8:30 AM ET GDP report. It has been floating around 3850 since the report’s release, along with the release of weekly unemployment claims.
  • Key levels are unchanged from the past two days except for a higher Vol Trigger (3805).
  • This metric sliding higher suggests an increase in put Gamma positions.
  • I am looking for support today at 3834 and 3800. Below there, I see another support level at 3755. On the upside, we will likely continue encountering some major resistance at the 3900 (Call Wall).
  • The positioning dynamics outlined in yesterday’s AM note still stand for today. We historically wouldn’t even mention a GDP reading, but now those readings (like CPI’s) are potential volatility triggers in this illiquid environment.
  • The headline number is positive due to a flood of government spending in the last few months, typical of the Uniparty ahead of the midterms. Incincumbents want to keep their jobs.
  • And I already discussed Treasury Secretary Janet Yellen’s hail mary pass to put a floor under the stock and bond markets to help minimize the Democrats’ walloping in a few weeks.
  • Even typical Dem cheating cannot overcome their fate if the polls are accurate. And their cheating is limited by the local population counts – if they are losing in a landslide and they add too many phantom votes, the votes could exceed the local population as happened in a number of cases in 2020.
  • By the way, don’t think Republicans don’t cheat too. I didn’t see them clambering for audits after the 2020 election, either. That is why I call them the Uniparty.
  • Further, our critical support line (Vol Trigger) has been working its way higher along with the market. This migration is expected behavior and highlights that a break of 3800 leads to an air pocket underneath.
  • I would also note that once again (as with Tuesday), the S&P charged into 3900, but the Call Wall did not move higher. Traders do not appear to be looking for more upside over that level right now – but we are early in the 20-week cycle.
  • In addition to the usual interest rates and earnings concerns, the predominant theme has been the rise of DTE options trading and the extremely flat skew.
  • To this point, put values are low relative to calls – which comes from call buying and put selling.
  • The Founders Group exited their latest swing long position yesterday at 3895.75 on an hourly sell signal. We met our next intersecting price objective at 3900, derived from the 20-day cycle forecast on the daily chart. 
  • The 3900 level also happened to be the 50% retracement of the August to October decline, where this second leg up had equality with the first from October 13th to October 17th.
  • Also, we are rolling into month-end on Monday. Tomorrow is the weekly expiration, and the WEM high is 3936 – so be aware that the WEM high alone could stall gains today and tomorrow.
  • Even in the most bullish of scenarios, nothing goes straight up.
  • The pain trade is still higher, I am reticent to go to a swing short quite yet, and I would consider entering new long positions from the 5-day line at 3820.
  • Also, remember that the “strong” GDP number and an improved stock market give the Fed flexibility to raise rates further.
  • Here is my bottom line; we are in the eye of the hurricane as the 20-week cycle delivers what I expect to be a bear market rally that peaks between 4000 and 4100.
  • Then everything reasserts itself from inflation to Taiwan before year-end.
  • Don’t be confused by the GDP “head fake,” as the Uniparty throws out this brief “save” before mid-terms.
  • And if the market rolls over this cycle from 3900, which is possible, look out below. If the bear is alive and well, the 20-week cycle would peak in early December. If not, then the peak comes early next year.
  • On the bear sice, any slide accelerates below 3700 as we head into the air pocket.
  • Get your parachutes ready – just in case. But everything tells me we are going up for now.

A.F. Thornton

Interim Update – 10/25/2022

Good Morning:

  • Futures were quiet overnight, holding 3800. Key levels from yesterday are little changed. Price will encounter resistance at 3800, 3824, and 3851. Support shows at 3756, then 3700. Reread yesterday’s update for context.

  • Traders need to get on board with longer-dated calls to support this rally, especially as short-term sentiment indicators have moved back to neutral. 

  • Volatility is starting to subside, a bullish signal for markets as the contraction invokes a Vanna tailwind.

  • But there is little between 3800 and 3700 to support prices if they slide, and there is the potential of a right shoulder dip, as discussed yesterday. Then the rally could resume in earnest, and I would put 4100-4150 as an objective.

  • But a little FOMO fever is developing as the trend-following CTA community flips to buy signals between 3800 and 3900. Also, stock buybacks continue next week.

  • Global tensions could be the catalyst for any scary dip south. Otherwise, this rally leg should top in early December if the bear is to resume.

  • And don’t forget that the Fed meets and will announce interest rate policy on November 2nd, with the midterm elections a week later. That could be the turn after a right shoulder dip.

  • I will be in the Founder’s Room later this morning.

 A.F. Thornton

Interim Update – 10/23/2020

Originally Published Sunday Evening 10/22/2020

Revised Monday Morning, 10/24/2022

Projecting Last Dow Jones Index Stagflation Market from 1963-1984 Onto Our Current Developing Correction
Projecting Last Dow Jones Index Stagflation Market from 1963-1984 OntoThe Current Developing Correction
  • Good Evening:
  • Futures have recovered to 3790 after opening above 3800, then trading to 3740. For today we see resistance at 3800, then 3835—support shows at 3760, 3725, then 3700. The DEM Implied Move is quite high at 1.3%, which reflects the Gamma that expired on Friday.
  • My work told me to expect the bounce from 10/13 at 3507. And the price actually bounced at 3502 – only a few points off the target. But prices remained in the recently formed balance zone between 3600 and 3800 on Friday, with 3700 as the mid-point. 
  • Combine this with the street being lopsidedly short (with the highest cash positions in a long time), and I still think the “pain” trade is higher. The question is whether the price is ready to break out now and tag our first target at 3916. Or does it take one more spill into the lower end of the balance zone and then return to the top and break higher?
  • I am leaning towards the latter scenario, as the price appears to be finalizing three pushes from the low, forming a leading diagonal on the daily chart. Diagonals often lead to components of head and shoulders chart patterns; in this case, it would be a right shoulder to reverse higher. Concurrently, this would provide some accurate upside targets.
  • The possibility motivated the Founder’s Group to take a swing position at 3684.25 on Friday. And our trailing stop remains 3976.50 at this writing. 
  • We would have been stopped out last night at our original, lower stop price from Friday. Fortunately (and sometimes, unfortunately), you cannot place a formal stop on options, nor can you sell SPY options on weekends or during Globex hours, and we are better off for it this morning.
  • Many of the 24-hour price highs have come overnight before selling ensues in regular hours.
  • If prices break above the 3600 – 3800 zone, it is easier to contemplate a move to the first Fib target at 3916. The Balance Range projection (200 points) is even higher, near 4000. 
  • Similarly, if the price breaks below the bottom of the zone at 3600, we can project a move to new lows near 3400 or worse. Balance Rules are a good guide in that respect.
  • Another key to the rally case is maintaining prices above the 21-day mean at 3724, the 5-day line at 3737, and the Algo trigger at 3648. These are moving targets throughout the day, but if we could tolerate a dip into the Algo Trigger, the price would form a perfect right shoulder reversal pattern to go higher. 
  • The minimum projection from the pattern would shift to the 200-day line and the highest regional volume node between 4120-4140. I don’t want to get too far ahead of my skis, and there would be a few humps between our 3800ish range top and a trip to test the 200-day line.
  • And what would motivate this rally amid Nuclear War threats, record Inflation, and the fastest rise in yields in our history? 
  • First, there are hardly any potential sellers remaining; save the retail crowd. Then there will be the short-covering. And FOMO will kick in as year-end approaches. Stock buybacks resume next week. And post-November 8th, maybe we will have thrown the bastards out of office.
  • Note to self; it could take them months to count the vote in this modern republic.
  • A reversal would also be consistent with a launch of the 20-week cycle, expected to be weaker than usual with the bear market overlay.
  • Note that following moving average lines like the five and 21-day lines in a sideways range is admittedly treacherous – but let’s see how it goes. 
  • And If I am accurately interpreting the wave action, once this 20-week cycle rolls over, regardless of when or where it starts, a series of multifractal “3” waves will get underway as we travel to the nominal 18-month cycle low, currently scheduled to arrive around 2/25/2023. 
  • Third waves are the worst waves we encounter in bear markets, especially in a multi-generational cycle, such as the nominal 90-year cycle that defines this period.
  • I expect this 20-week cycle wave to resolve with a bearish left translation, though the pattern allows for more rallying. But we will be about one-third of the way through the wave by early December, the ideal time for a bearish wave to peak.
  • I wish I knew what to tell you to do now. At best, I can set the stage. But In times like these, I prefer to observe the price action in real time. A patient investor might wait until we call a bottom to the bear – likely next spring. 
  • Or, pay attention to the next Navigator Swing signal, likely to come off the right shoulder mentioned above around October 28th.
  • And don’t forget the Founder’s Room motto I first heard from Tom over at Bookmap. From time to time, we feature Tom in the Founder’s Room. The motto is, “If this, then that. If not, then what? That is the only plan that makes sense, especially in a bear market. Have a plan that considers both sides of the market. A plan helps you stay objective.
  • Much of the option open interest at 3700 expired Friday. After reviewing the CME statistics last night, here are my thoughts: 
  • The board has currently been “reset,” so to speak. We now kick off a November OPEX (Monthly Options Expiration) cycle; we look for new large options positions to form over the coming weeks. With that, the market should start to tighten around key options levels.
  • To that end, there were several shifts in key levels after Friday OPEX:
    • First – the largest gamma level shifts up to 4000 from 3700. This rise, like a higher DEM today, syncs with my view that markets will unpin from the 3700 area this week.
    • Second, the Call Wall shifted to 3900, which now starts as our overhead target into Nov OPEX.
    • Finally, the Vol Trigger is at 3725, and as stated on Friday – should the SPX trade above that level, our algos hold a bullish stance.
    • Since the Oct OPEX positions are gone, we see the range from 3835 down to 3700 as quite fluid due to light open interest. Accordingly, over the next session or two, I anticipate options positions building right below the 3900 Call Wall or right above the 3600 Put Wall, with implied volatility reinforcing market behavior – meaning higher prices lead to lower volatility and vice versa.
    • With traders net short here, declines tend to “grind down” with jumpy upside moves. This behavior is the mirror image of call-heavy, bullish markets (like last year).
    • The options feedback look is increasingly important as the “Meme Crowd” and hedge funds continue driving daily Gamma squeezes in the ES and NQ using DTE (one Day To Expiration) options.
    • Seasonally, the market usually picks up momentum on the way to midterm elections. The market could also rally into the Fed meeting in early November. 
  • The Fed flinched slightly in a New York Times leak on Friday morning when the market looked a bit scary. We know there was a big meeting of the powers that be. And we also know that OUR Fed bailed out Credit Swiss to the tune of $11 billion. 
  • When you consider all the money rolling out the U.S. doors these days, wouldn’t you rather be one of our customers than a taxpayer?
  • And thanks to inflation, the U.S. had the highest tax receipts ever this past year. AND THEY STILL RAN A $1.4 TRILLION DEFICIT! How will that $31 trillion debt payment look at 5% instead of 0% interest?
  • So we survived another day Friday without capitulation – but I am not sure the Fed leak was sufficient to drive anything other than a bear market rally.
  • What I am more certain of is that the Uniparty will TRY to drive a rally to support incumbents in the election ahead. I suspect the big Friday meeting had discussions to that effect.
  • Besides last Friday and Monday being among the lunar “Dark Days,” where past stock market panics have bottomed, Tuesday is a solar eclipse. That should be enough for the astrologers to bring us a low, right?
  • Is there anything to this astrology trading? I just learned about it, and we will find out if the market puts in an intermediate low here. Even then, the celestial relationships might still be a coincidence. 
  • By the way, there is a lunar eclipse on Election Day if you can believe it. If we will all be “lunatics” on Election Day, then we are no worse off than the people on the ballot. 
  • Nor does the Fed seem to have control of the treasury market at the moment, with Japan and China dumping our treasuries like they are kryptonite. That does not help the case for stabilizing the fastest and largest interest rate rise in American history. 
  • The interest rate on U.S. Treasuries closed well over 4% last week, and the chart looks like a hockey stick.
  • And then there was the big news today that “someone” will set off a dirty bomb in Ukraine this coming week. I have been waiting for the October surprise, and maybe this is it.
    If so, this should be followed here by mobilization of the U.S. military, a draft, martial law, and a suspension of the U.S. elections. Wouldn’t that be convenient?
  • A nuke in Ukraine would likely cause a flight to safety (I am referring to renewed demand for treasuries, not my plane flight to Antarctica).
  • There is precedence for stocks to rally even in the face of higher rates, but I wouldn’t say I like the probabilities that it would rally beyond what I discussed above. At the same time, you don’t have to lose much to test a low-risk-to-stop short position at the top of a range. So if you are bearish, keep a short around 3800 in mind.
  • So I am on the fence about another spill or whether the market rallies from here for another month or so before the final nose dive.
  • I would also note how similar the current spill looks to the first sell-off in the stock market that topped in 1963 and went sideways for 16 years. At the comparative juncture, the 1963 market rallied back up to the top of the range in 1966 before a 50% decline into 1974. I  posted a perspective chart with a few notes above.
  • On a separate note, many of you know I lost my father-in-law and mother to the Covid vaccines in the past year. The side effects killed them. Remember it was “The Disease of the Unvaccinated?” Everyone had to be vaccinated to protect others, not just themselves. 
  • This past week, we discovered that Big Pharma knew the vaccines did nothing to prevent transmission and likely enhanced transmission from the vaccinated. Pfizer’s testimony to the European Parliament this past week confirmed it. And my loved ones died from the exact side effects that Pfizer failed to disclose. They tried to seal all the vaccine trial documentation for 55 years! Fortunately, the judge who got the case wasn’t corrupt and refused Pfizer’s request.
  • Do you know why I never took the vaccines? Instinct! The Orwell Regime pushed them too hard – with the Davos Crowd supporting them. It wasn’t normal. No government has ever forced a vaccine down their citizens’ throats like this. What was their motive?
  • The vaccine has killed or injured many (otherwise healthy) people. There will be many more for years to come – likely in the multiple millions. You will be stunned as the evidence comes forward. The CDC and NIH have been hiding it. The vaccines are a complete fraud, and it is hard to believe it wasn’t intentional.
  • India used Ivermectin and Hydroxychloroquine prophylactically in a province of 200 million people and maintained a fractional incidence of the disease.
  • I immediately recovered when I finally used both inexpensive treatments after getting the virus.
  • The vaccine’s real story is slowly coming out – and it should terrify every patriotic American.
  • Please go to this Website  [https://freedomplatform.tv/the-real-anthony-fauci-the-movie/] and watch this disturbing documentary about Anthony Fauci and his crimes produced and narrated by Robert Kennedy Jr. The documentary tracks Mr. Kennedy’s recent book of the same name. The documentary is free for another few days. Be sure to pass the link to your friends and family.
  • Sadly, like every other institution in this Country, our medical system is badly corrupted and broken.
  • You will be shocked at what you will learn in this documentary. Every word in the movie and book is footnoted and double-footnoted to back it up.
  • We have to vote anyone associated with this nightmare out of office this November, regardless of whether their name has a “D” or an “R” behind it. They need to go, or our nation is doomed.
  • And the only way to change the captured and corrupt government agencies and their leaders is to send these actors to jail. Their actions are on par with the Nazis in Germany, and these actors deserve Nuremberg-like trials.

A.F. Thornton

Interim Update – 7/27/2022

Good Morning:

  • Futures are higher to start the morning, testing the 3700 level. Support shows at 3659, then 3600. Resistance lies at 3700 and 3750.
  • As mentioned yesterday, I am taking some much-needed time off today, as monthly options expiration can distort normal trading. I can already see the craziness on my screens pre-market.
  • And no, I did not get the date wrong – though I do get it wrong occasionally.
  • Instead, I decided to use the lunar calendar. Why, might you ask?
  • 7/27 and 7/28 on the lunar calendar are called the “Dark Days.’ And that is because most of the serious stock market panics in history bottomed on one of these two days.
  • There are too many panic lows that ended on these two lunar calendar days in the past two centuries to consider the timing a mere coincidence.
  • And let’s face it, the moon moves the tides, right?
  • And our stock market has been declining since November 2021 for the NASDAQ and January 2022 for the S&P 500.
  • But I don’t see a “panic” low in stocks coming today, though the day is far from over. Wouldn’t it be crazy, though, if this were THE low in the stock market today?
S&P 500 Cash Index - Diverging from Bonds and Leading Them Higher?
S&P 500 Cash Index - Diverging from Bonds and Leading Them Higher?
  • But what about the bond market? Now there, you might have a point!
  • The 10-year U.S. Treasury yield has been on a tear all week, rising above 4% for the first time since 2007.
  • Rates have only risen this fast a few times in history.
  • And that destroys the principal value of existing bonds.
U.S. Treasuries - The End of a Panic on the Dark Days?
U.S. Treasuries - The End of a Panic on the Dark Days?
  • Now that looks more like panic. Could the bond bear market possibly end today? We will find out.
  • With this morning’s expiration, roughly 20% of total SPX options positioning expires, then approximately 30% of total SPY/QQQ expires in the afternoon.
  • Markets are all about feedback loops. Momentum shifts in one direction, and options flow forms to reinforce that direction.
  • This feedback loop, we believe, helped to propel equity markets higher over the last week, and now expiration is a catalyst to spark a new feedback loop.
  • Our core takeaway from this expiration is an unpinning of the 370 SPY/3700 SPX and 270 QQQ area.
  • We assign a very slight edge to a downside test of the 3600 Put Wall to start next week based on the idea that the put decay, which has been an equity tailwind, is gone.
  • But, should the SPX trade above its Vol Trigger level (3750), our algorithms flip to a bullish stance.
  • The flip presents because above the Volatility Trigger, we estimate the dealer gamma shifts positive, which suggests that volatility should come down.
  • If volatility comes down, that reinstates the tailwind for equities (Vanna flow).
  • Even if implied volatility recedes sharply in the short term, we only have another two weeks until two strong volatility catalysts present: The Fed meeting (11/3) and elections (11/8).
  • Additionally, some foreign central bank events could trigger market movement (e.g., the European Central Bank (their Fed) has its next meeting on October 28th).
  • One additional item bears mentioning and may turn out to be very important. When we look at the futures market, the Commercials (Dealers) are positioned for the stock market to rally. They are rarely wrong. In fact, I cannot recall the last time that they were wrong.
  • And, even if the bear is persistent, the 20-week cycle should provide some tailwinds, at least for a time.

In closing, do you know where the term “lunatic” comes from? It refers to the Moon’s influence on human behavior. As I looked at myself in the mirror this morning and thought about what I would be sharing with you  – that voice in my head said, “If the shoe fits…”

Have a great weekend.

A.F. Thornton

Interim Update – 10/20/2022

Good Morning:

  • As I had suspected it would transpire, this rally is starting to look a bit like the sputtering launch last June. And this is still a bear market until proven otherwise – cycles tend to peak early.
  • With the Weekly Expected Move high at 3700 this week, combined with monthly options expiration tomorrow, it does not seem like there is much room for higher prices until Monday. The cycle at hand should have taken us up to 3820, and it may yet. Thus far, however, there has been no follow-through buying after the short-covering finished.
  • We took our stop yesterday at 3715 for the Navigator Swing Strategy, and we are now back to cash. We were heavily influenced by yesterday’s extraordinarily weak 20-year U.S. Treasury auction. It took a 4.35% yield to move the bonds – the highest for the series since its inception. 
  • Foreign buyers were scarce compared to previous auctions. One can only wonder what happens if the U.S. Treasury auctions begin to fail. These auctions feed a monstrous debt and deficit spending, not to mention the ever-increasing interest on the debt.
  • Let’s get through options expiration over the next few days, and we will do heavier-duty forecasting over the weekend.
  • For now, we are in the middle of the range/strikes at 3700. We show 3800 as the top of the range and 3600 as the floor.
  • Any time you try to position from the middle of a range, you had better be right. Your risk to a valid stop is 100 points in this case. 
  • I still see the potential for another leg up in this rally, but the easy part is behind us, with the short-covering seemingly over.
  • Now that we are back in cash and options expiration is influencing prices, I am taking a few much-needed days off today and Friday. The trading room will be closed absent an unexpected opportunity. Even on days off, I never take my eye off the ball.
  • And we won’t be day trading for the next few days, as that is the general rule around monthly options expiration. Expiration often distorts price movement and can decimate typical day-trading setups.

Have a great weekend ahead!

A.F. Thornton

Reminiscing – 10/19/2022

Dow Jones Industrial Average - 1987 Stock Market Crash
Dow Jones Industrial Average - 1987 Stock Market Crash

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

S&P 500 Continuous Index Futures - Lines Represent Full Moons
S&P 500 Continuous Index Futures - Lines Represent Full Moons
  • 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

S&P 500 Continuous Index Futures - Lines Represent Mercury aligning with Earth and the SunFull Moons
S&P 500 Continuous Index Futures - Lines Represent Mercury aligning 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

Interim Update 2 – 10/18/2022

Good Evening:

  • Res Ipsa Loquiter – the Thing Speaks for Itself.
  • Now, where do we get out?
  • I am looking to scale out between 3800 and 3820 – all else being equal.

Enjoy the video!

A.F. Thornton

Interim Update – 10/18/2022

Good Morning:

  • Before I forget, I want to mention two of the best sources I know right now for unfiltered, objective Global News. 
  • First, let me mention Alex Christoforou [https://rumble.com/c/AlexChristoforou]. Alex roams around Athens, Greece, Nicosia, Cypress, or wherever else he may be, with his GoPro camera giving you straightforward, unfiltered, and compelling analysis while touring beautiful historical sites. He is a true, old-school journalist in a time where everything is propaganda.
  • My second suggestion is Redacted [https://rumble.com/c/Redacted]. You will likely remember Clayton Morris from Fox News. He and his wife, Natalie, have joined the ex-pat community in Portugal. They do a daily broadcast at 4 pm EST, and I never miss it. The couple always records the broadcast for later viewing. Once again, objective, unfiltered, old-school journalism.
  • I provide Rumble addresses for both news sources because they have been suspended from YouTube several times for departing from the prevailing “narrative.” That is how you know you can trust them. They won’t be on YouTube much longer, as nobody is who tells the truth.
  • Now, on to the stock market. Besides seeing the most upticks in several years at yesterday’s NYSE Open, we now have a huge gap open in Globex last night, and the market has yet to stop rallying. We have not seen a Globex Gap open of that size in a long time.
  • At this writing, the market will open in New York with a 272-point gain in NASDAQ, 627 point gain in the Dow, and 80 point gain in the S&P 500. All of the major indexes have gained more than 2% overnight. The Asians and Europeans are experiencing the same “Pain Trade” as the Americans as they all puke up their puts. The following chart tells the story.

The Put/Call Ratio Screamed "Pain Trade Ahead" on Friday

This Chart shows the S&P 500 Index in the upper half, and the Put/Call ratio in the lower half. The ratio hit the highest level in history Friday, higher even that the 2008-2009 Financial Crisis.
This Chart shows the S&P 500 Index in the upper half, and the Put/Call ratio in the lower half. The ratio hit the highest level in history Friday, higher even that the 2008-2009 Financial Crisis.
  • What does the chart above tell us? Retail traders were shorting the market in historic numbers – AT THE BOTTOM. And it is likely that some hedge funds and institutions were doing the same. They are all running for the exits now as if someone yelled fire in a crowded theater.
  • And here is another chart that lends some perspective:

Typically - The 200-Week Moving Average Only Fails in A Full-Blown Recession

This is a chart of the S&P 500 Index with Recessions Shaded in Red, and the 200-Week Moving Average Underneath. Cleary, the 200-Week Line Holds Unless A Recession has Fully Taken Hold
This is a chart of the S&P 500 Index with Recessions Shaded in Red, and the 200-Week Moving Average Underneath. Cleary, the 200-Week Line Holds Unless A Recession has Fully Taken Hold
  • Naturally, the Orwell Administration has redefined the term “Recession,” but with the GDP Now forecasting growth in the third quarter, the economy is sputtering but not quite there yet. War is good for business – do you see how that works?
  • In our decision matrix, we deal with probabilities and look for low-risk entry points. This is why I had mentioned the 200-week line Sunday evening.
  • And, since everyone will be looking for an excuse why the market is rallying (until it stops), how about this?

Peak Inflation and Interest Rates, Anyone?

Last Year, this chart was flipped, with the divergemce indicating that rates would rise. Now it is the opposite, indicating that the important 10-year Treasury Rate could be peaking.
Last Year, this chart was flipped, with the divergemce indicating that rates would rise. Now it is the opposite, indicating that the important 10-year Treasury Rate could be peaking.
  • We will have some deeper analysis for subscribers later today. 
  • For now, resistance shows at 3875, then 3895. Support shows at 3700, then 3649. The Put Wall has rolled up to 3600 (from 3500), statistically a bullish signal.

  • We also see the Vol Trigger & Zero Gamma points sliding lower, which suggests calls building. Like the last rally, call-building is necessary to sustain the rally and pick up where the short-covering leaves off.

  • I still see a bullish edge into Friday’s OPEX, due to Vanna tailwinds and Charm. This idea strengthens if/while the S&P remains above 3700 support (the highest Gamma Strike). Large puts <=3700 also tilt the board in favor of bulls as these Puts decay into Friday’s expiration.

  • Needless to say, Gap Rules are applicable this morning, especially Numbers 2 and 4.

  • Overnight inventory is obviously 100% long, so there might be some profit-taking from our overnight brethren at the Open.

  • I will be in the trading room today, though day trading could be treacherous in this runaway environment.

  • I will join the room about 15-20 minutes after the opening.

  • Buy dips to the five-day line – at least for now.

A.F. Thornton

Founder’s Trading Journal – 10/16/2022

S&P 500 Index Continuous Futures / Friday’s Close – 3597.50 / -84.25 pts (-2.29%)

Published Sunday Evening

Navigator Swing Strategy™

20-Week Cycle Bottoming

S&P 500 Continuous Futures - Cycle Analysis
S&P 500 Continuous Futures - Cycle Analysis

Navigator Algorithm™ Trends

S&P 500 Index - Navigator Algorithm

This is a chart of the S&P 500 Continuous Futures with the Navigator Algorithm Status Panels, a momentum indicator in the lower panel, the Daily and Weekly Expected Moves marked, and a cumulative Volume Profile on the RIght Side of the Chart showing high and low volume nodes where price may be challenged and reverse,
This is a chart of the S&P 500 Continuous Futures with the Navigator Algorithm Status Panels, a momentum indicator in the lower panel, the Daily and Weekly Expected Moves marked, and a cumulative Volume Profile on the RIght Side of the Chart showing high and low volume nodes where price may be challenged and reverse,

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 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. The table reflects the key trading levels for Monday, 10/17/2022.

The Daily and Weekly Expected Moves are Color Coded to the Algo Chart above. Otherwise, the listed levels are speed bumps to price traveling north or south, and price has the potential to reverse on one of these levels.
The Daily and Weekly Expected Moves are Color Coded to the Algo Chart above. Otherwise, the listed levels are speed bumps to price traveling north or south, and price has the potential to reverse on one of these levels.

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.”

Founder's Journal and Trading Notes

Below are a few relevant excerpts for today from A.F. Thornton’s trading journal. Check out the full notes with a paid 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 today and what to expect tomorrow...

    Good Evening:

    • Volatility is in the air again this week. For Monday alone, the options market is pricing in +/- 60 points from Friday’s close (3597.50) for a 120-point day range. For the week, the options market is pricing in +/- 130 points from Friday’s close for a 260-point week range.
    • The Founder’s Group continued to scale into long positions between 3610 and 3685 on Thursday and Friday after Thursday’s Navigator Algorithm Buy Signal kicked in.
    • Technically, the signal painted just above 3600 on Thursday. But as we said then, the price did not confirm the buy signal unless the market closed above 3655, and it did.
    • From there, our job was to scale in on pullbacks, and we got plenty of that on Friday. Our stop remains a few ticks under our proprietary Algo trigger line, which also moved around quite a bit on Thursday and Friday.
    • Thursday was a day like no other. The turn was predictable, only a few points off our projected 20-week cycle low at 3509. The actual low was 3502.
    • Still, the magnitude of the bounce was unbelievable. A day like Thursday has occurred only three times in history, and the market gained at least 10% in the ensuing weeks each time.
    • For our purposes, Thursday saw a rare, bullish engulfing candle and true pivot on the daily chart, further confirming the buy signal and adding to the bounce case.
    • As you will see from the first chart above, we could predict the timing of the low using cycle algorithms and projections. When the price crossed the 20-week FLD (Future Line of Demarcation), we projected the distance from the last cycle peak to the break to predict the low. The predictions are generally accurate within a small price variance.
    • The 20-week cycle low (3502) should be in place. However, traders might push the market down to retest it before the market can seriously bounce.
    • It is in the eye of the beholder whether Thursday was a successful retest of the June low, negating a retest of Thursday’s low before the price rebounds. As is typical on Fridays, the market left us hanging on the ambiguous edge of resolving the issue.
    • What I would expect now, excluding the plethora of exogenous global events which could derail any prediction, is a bounce out of the 20-week cycle trough and then an eventual resumption of the bear. The 20-week cycle will likely have bearish, left translation in its wave structure. 
    • Price targets for the 20-week are 3817.50, then 3915.50, then 4012.50. We may not make it that far, so I will be scaling out, starting at the first target, while also maintaining our trailing stops.
    • The price should continue to the 18-month low forecast for early March 2023.
    • Conceptually related to the 18-month cycle low, the price is also bouncing off the 200-Week Moving Average, where most oversized corrections and cyclical bear markets end (2016 and 2018 are good examples).
    • Coincidentally, not far below 3502 lies the 4-year cycle FLD. Generally, if the market starts closing below the 4-year cycle FLD, you can measure from the all-time high to the break and project it down to forecast the ultimate low.
    • On the first chart above, I took a theoretical break at 3502, resulting in 1306.25 points from the January market top to the break. Projecting 1306.25, down from the theoretical break at 3502, gives the price a downside target of 2195.75, very near the China Virus Crash lows in March 2020.
    • Time-wise, that low is not due until the summer of 2024. And we have a rest stop at the 18-month cycle low in early March 2023 to keep us busy until then.
    • Still, we have to consider that the price could get to the projected target early (like the 18-month cycle low forecast for early March), with the “time” element resolving with a retest of the March low on the 4-year low forecast for the summer of 2024. There are many examples of these variations if you study past bear markets.
    • The point is the 4-year cycle FLD is what separates bear markets like 1929, 1973-74, 2000, and 2008 from the rest of the crowd. What kind of bear will this be? From everything I see right now, I would bet on an eventual break of the 4-year FLD and 200-week Moving Average like 2000 and 2008-2009.
    • But let’s at least look for a rest stop at 3375 or so before the 4-year low sets down.
    • Anyway, it is all theoretical as we have not violated the 4-Year FLD as yet. I want you to be aware of the prospects.
    • And what we have now is a cascade of cycles nesting on each other, which is a rare occurrence, normally leading to a pause, if not an outright bounce.
    • As I always advise, avoid the “all or nothing” thinking. Go to the Latest Stock Market Forecast in the Categories menu to your right. I wrote that macro forecast originally in January and updated it in March. Nothing has changed. We could be entering a trading range market just like the similar period in the 1970s. That would support lows here and a sideways market for a while, like the 1966-1982 market. It is not my base case, but I keep it in the back of my mind.
    • The point is we have 600% plus gains this year because we follow the price and algorithms wherever they want to take us, and we try our best to leave our bias in the hallway before we step into the office.
    • And need I remind you that everything I told you more than two years ago has come to pass? I said inflation would come roaring back. I told you that a “Fourth Turning” was coming, referred you to the 1997 book, told you it would be miserable, and even featured an interview with Neil Howe, the co-author of this seminal work, on these pages. I told you about the World Economic Forum and the Great Reset to Collectivism and Authoritarianism. And finally, I told you not to fear the China Virus – fear the shot.
    • My partner thought I had lost it several years ago, and I am sure many of you felt the same. Yet, now you know I wasn’t crazy as we continue to suffer the consequences of President Orwell and all of his WEF handlers.
    • Nothing has changed. We are in an existential battle for the freedoms and values we have taken for granted. Every conspiracy theory I have ever heard seems to be coming true. We are watching history unfold in real-time right in front of our eyes.
    • By the way, did you know we are also invading Haiti? Look over here… You cannot make this stuff up. And what might the market do if Zelensky and Ukraine give up the fight? There is little left of the Ukraine Army (or our taxpayer funds).

    A.F. Thornton

    BluPrint’s business model for retail services is sharing the buy/cover short 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.

    * Clients are advised to scale in on pullbacks when a closing price is significantly above the algo signal generated on that day.

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