Moment of Truth – Part III

S&P 500 Master Cycle Update
S&P 500 Master Cycle Update

Good Morning:

 — For the third time, the price is testing 270 degrees of the trend from October 13, 2022, at 4175. Will persistence beat resistance?

 — This third trip counts November and January. And the location also happens to be at the top triangle consolidation line from August 2021. We have discussed this line over the past few weeks.

— Indeed, this is a critical moment for bulls. As we come to the end of the week, the price action nearly matched last week’s candle. But traders were not quite able to drive to last week’s low yet tested slightly above last week’s high. Does this give the bull’s a slight edge?

— Yesterday’s price action brought the daily and hourly strategies into a buy signal at 4131.50. We lightened up the positions at 4175, keeping half adorned with the usual caveats that the price maintains the five-day line and the machines keep buying there.

 — I continued to be surprised by the bullish price action since last October, especially given the headlines. But what doesn’t surprise me is that the Master Cycle predicted as much.

 — We had the Master Cycle prediction in our toolbox for a long time. We could publish a roadmap for the next five years. But the path ahead is not something to ponder if you want to hold down your food today. So we will keep the future under wraps.

 — But in the shorter term, the Master Cycle has predicted good things and continues to do so. Why? Your guess is as good as ours. History rhymes and the current period seems to track both the 1960s and 1920s. Both of those decades did not end well, and neither will this one.

 — The Master Cycle did fall to an 80% correlation on the latest banking crisis, but it is back to 85%. If it does drop below 80%, we will consider the possibility of an inversion. Nothing can predict an all-out collapse at these debt levels.

 — Subscribers get the information they need in real-time. Consider a subscription if you want to know when to buy and sell. It is a prescription for success.

A.F. Thornton

It’s a Schism-Based Stock Market

S&P 500 Cash Index Big Picture - Monthly Candles - Click Chart to Enlarge
S&P 500 Cash Index Big Picture - Monthly Candles - Click Chart to Enlarge

Good Morning:

 — Our algorithms brought subscribers back into the stock market (S&P 500 Index) beginning at 4113 over a week ago. But the Archimedes’ Hourly strategy tripped a sell signal at 4132.50 overnight, and the Daily strategy also tripped a sell signal at 4121 in Globex as I am writing this. We have been rotating some of the position when it is overbought and picking it back up at the 5-period line. But the weight of the evidence calls for a short-term turn today, which appears to be coming earlier rather than later.

 — We accumulate on the 5-period line in both strategies until it stops working. Price discovery much below the 5-period line triggers our stops. While it may seem somewhat of a conundrum, subscribers understand the approach.

 — The big picture in the Monthly Chart above shows the schism between a rising market since last October and the black swans circling above prices. A wide range of inept policies by political and financial institutions brought us to this point in only two years. Note the 2000-2002 bear market out to the left side of the chart with our M-Square framing. It is a close analogy to the current market.

 — “C” waves are dreaded. But as we saw in the March 2020 China Virus crash, they don’t always present. But carry the risk forward in our narrative because price reached the top of the consolidation triangle at the April 4 high, around 4138.

 — And when today is a short-term turning point on the daily chart as can be seen below, caution is elevated.

S&P 500 Futures Daily Chart - M-Square and Archimedes Turn Point Today - Click to Enlarge
S&P 500 Futures Daily Chart - M-Square and Archimedes Turn Point Today - Click to Enlarge

 — So if the machines fail to buy on the five-period line on the daily chart, and price discovery drops below Thursday’s low at 4121as is happening in Globex, cash is king once again, and shorts become attractive.

 — Our hourly strategy already stopped out in Globex at 4132.50 and may lead the daily time frame lower.

S&P 500 Index Futures - Hourly Chart Sell Signal Tripped (Clicked to Enlarge).

 — Supporting lower prices, the measured move from the last turn major turn point in early March is complete. So there is no reason to ignore this turn in the other direction.

 — And today’s turn date also shows up on the Master Cycle, though it is not forecast to be a major turn as yet. Only time will tell.

A.F. Thornton

Where is the Crash?

The March Monthly Chart for the S&P 500 Index Achieves a Bullish Cross of the 5 Month over the 21 Month (Monthly Mean)
The March Monthly Chart for the S&P 500 Index Achieves a Bullish Cross of the 5 Month over the 21 Month (Monthly Mean)

Good Morning:

 — Where is the crash? We have been asking this same question since we called the October 13th bottom last year. While the market has been volatile and perhaps challenging to trade, the wheels are still on the bus.

 — And we got the March turn we expected within a few days of where we had been forecasting since last fall. If anything, the turn came higher than we originally anticipated. We allowed for the market to put in a new low in March or retest the October low.

 — In the final analysis, March delivered a normal, 20-week Hurst Cycle low. In so doing, the price action sealed October 13th as the 18-month cycle trough. More importantly,  March helped confirm that the Gann Master Cycle forecast has been correct all along, staying above an 80% correlation. The small probability inversion we feared has yet to materialize.

 — Breaking above the triangle consolidation on the Monthly Chart would be another green light favoring the bulls. We expect the upper supply line to be challenged this week.

 — And while the Master Cycle flattens out beginning in May, it calls for a rising market through year-end. But we won’t get too far ahead of ourselves.

 — For now, note that the calls for a crash have been just as inaccurate as last fall. Contrary to the call of the bears, April is usually the best month of the year for the stock market.

 — For our part, the Founders Group has continued to cycle trades in the Archimedes Hourly Strategy profitably.

 — In the Daily Strategy, the Founders Group began scaling into the market last week at 3994. We began scaling out late Friday afternoon at 4107.

 — We are cautious as the price has risen uncomfortably above the mean, as the bears ran to cover their short positions. We look to buy on the 5-day line and the mean on the daily chart. We would like to see some mean reversion before we jump back in with both feet on the Archimedes Daily Strategy. We will take the hourly strategy as it goes.

 — But the important takeaway from March is that the market is improving, and to continue forward, the price must take out the top of the converging triangle. Then we might be convinced to ride this new leg higher. For now, the velocity/angle is not sustainable for much longer without a dip back to the 5-day line, mean, or some sideways consolidation. The market has been unable to deliver more than four up days in a row for quite some time.

 — And why is the market climbing in the face of all the negativity? Inflation and deficit spending. Plain and simple. Whether one attributes the spending to War, the Green Dream, or Democrat pet projects, deficit spending keeps the economy afloat. There will be an unbelievably high price to pay later. 

 — But even with this interim strength, the 54-Month Hurst Cycle (also the Presidential Election Cycle) promises to clip the wings of the bulls later this year, so be careful.

 — In the interim, enjoy the Trump arrest distraction while Russia finishes humiliating the collective West with a sound defeat in Ukraine. The arrest should also distract from the demise of the U.S. Dollar as the world reserve currency. More and more nations are joining Russia and China and moving away from the West, including Mexico, to our south.

 — We will look at this moment with sadness as the culmination of unwise policies by the collective West – including weaponizing the U.S. Dollar and confiscating Russian assets at the U.S. Treasury. The chickens are coming home to roost.

A.F. Thornton


Buy on the Canons – Sell on the Trumpets?

S&P 500 Index Futures - Hourly Chart
S&P 500 Index Futures - Hourly Chart

Good Morning:

 — If there is one thing that has kept me out of the bear camp, it has been the draconian doom and gloom of the crowd.

 — And who doesn’t sympathize with the bears among them? Another banking crisis is at hand; WWW III looms; Rampant Inflation permeates the economy; the Russians promise to destroy us now that we will use Uranium infused bullets and shells (essentially Dirty Bombs) in Ukraine; etc. The bears have a lengthy list of legitimate concerns.

 — But the point is that when the crowd tilts too far to the negative side, that also means that they have positioned themselves accordingly. Who is left to sell? And then the market stops falling. Soon enough, the buyers show up. Fear of Missing Out (FOMO) kicks in, and it is Spring again in the stock market.

 — And in the darkness that pervades a low, I always harken back to one of my most revered mentors, who told me that if buying the stock market feels good, it will likely turn out to be a bad decision.

 — He used to call it the “Puke Point.” When you feel ready to regurgitate, it is time to buy. Until then, hold on to your cash.

 — And, naturally, the Puke Point is somewhat malleable, like most things in the stock market. A good short-term trade might start with you feeling mildly ill. That is how I view the market now.

 — Perhaps a nice rally “leg” will ensue from yesterday’s S&P 500 Futures 3994 buy signal before the market sells off again.

 — Hence the Archimedes Hourly Strategy is the preferred vehicle when positioning from “mildly ill” with trouble still on the horizon. Perhaps 4100-4200 might be a reasonable target before it is time to “sell in May and go away.”

—  Whereas the Puke Point from your hospital bed, where all seems lost in the cancer of negativity, is more likely to lead to the start of a brand new bull market – typically from the bowls of September or October.

 — In my opinion, we are not at the September/October kind of entry point. Hence, following the Archimedes Daily Strategy typically presents a better long-term buy signal. Keep in mind, however, that the hourly signal always has the potential to be an early entry into the daily strategy, as we are seeing this morning.

 — Lest we get too comfortable, note that the Unemployment Claim numbers arrive tomorrow morning, followed by a slew of Fed Governors speaking. We need to kill all those jobs to make up for the errors of the Central Planners.

 — And the Fed’s favorite inflation measure, Personal Consumption Expenditures (PCE), will be released on Friday.

 —  One has to brave these reports upon entering the market now. But the more confirmation you need, the more you will pay. And the more you pay, the more money you will lose if your stop is triggered.

 — And lest I forget, Friday is the last day of the 1st Calendar Quarter for 2023. Money Managers tend to do strange things into the close, like “Window Dressing” their portfolios.

 —  For example, large-cap tech stocks have been doing well of late, with companies like Apple close to all-time highs. Who would have thought, right?

 — Client to Money Manager, “Hey, why did we perform so poorly for the quarter? I see from my statement that we own Apple and some other names that did well.” Money Manager to Client “well, you know how statistics and performance can be so confusing; look to the long-term, and all will be well.” Money Manager to herself ” I am so glad we sold those bank stocks and bought Apple and a few others on the last day of the quarter – or we would look even more like fools!”

 — We use a few ticks below the 5-hour line for the Archimedes Hourly Strategy stops and a few ticks below the 5-day line for the Archimedes Daily Strategy stops.

 — Without a subscription, the decisions we discuss now and then in this free blog will not be timely. But there is always something to be learned from following our decisions, even from afar.

And so it goes…

A.F. Thornton 

Stuck in the Middle With You

The Monthly Chart Moves Slowly, But Renders the Macro Picture of Supply and Demand (Bulls and Bears) Converging on Each Other for Control.
The Monthly Chart Moves Slowly, But Renders the Macro Picture of Supply and Demand (Bulls and Bears) Converging on Each Other for Control.

Good Morning:

– ☽ – We start with the Monthly Chart for the big picture. On a negative note, the price has traded below last month’s low, a Low of the High Bar Sell Signal – at least if the Candle closed below last month’s low. We don’t trade monthly charts, so the argument is by analogy since the market is fractal (price behaves the same way in every time frame).

– ☽ – Obviously, monthly charts trade too slowly to be useful for buy and sell signals. Still, we note the price action for our narrative. 

– ☽ – But the monthly chart shows us the triangle consolidation where bulls and bears have traded places lately, with neither side scoring a macro trend since August last year. We certainly cannot call the bear market over at this point, though bulls have managed to hold the October and January lows.

– ☽ – The March 13th low should be a 20-week cycle low, and the “M” cycle shape is discernable. But whether the next cycle will be short-lived on the upside, with left translation leading to lower prices, remains an open question.

– ☽ – We have been back to cash for the past few sessions. Taking either the bull or bear side from the middle of a triangle ( approximately 4000 in our case) must be undertaken carefully and preferably by skilled professionals who understand exactly what buying the middle of a range means. Even waiting to buy the first breakout from a triangle can be treacherous. Breakouts fail 80% of the time.

– ☽ – If you want to lose money quickly and consistently, try fishing for the bottom. I could build a very nice home with the money I have lost trying to pick bottoms over the years.

– ☽ – Patience is a virtue. You don’t need to be first. When you look back from the next bull or bear leg, you will realize that you did not need to be in a rush. There is plenty of time for a daily swing trend, not to mention a new bull or bear market.

A More Granular Look at Price Through the Eyes of the Weekly Chart Shows the Ever So Slightly Bullish Edge
A More Granular Look at Price Through the Eyes of the Weekly Chart Shows the Ever So Slightly Bullish Edge

– ☽ – We see from last week’s price action that the price explored territory above the previous week’s high, even though it ended in a draw. I would have preferred that the candle body close above the previous week’s high. Nevertheless, note the accomplishment. The Devil (preferably the Angel) is in the details.

– ☽ – The Weekly Chart can be slow, but the 5-Week Line is pointed north and seems to want to poke through and above the weekly mean. Price also attempts to enter the bull half of the 180^ to 270^ M-Square. If successful, the blue angled Line becomes support, and the 270^ Line becomes the next target. 

– ☽ – Stops can always be maintained a few ticks below the blue Line in a trading time frame. We look to a weekly chart for a slightly more granular macro picture. We don’t trade it. But if the target is achieved from a trading time frame, the weekly target is close enough to mount a full challenge to the last swing high at 4243.25.

Steve Puetz (Universal Cycle Theory Author and Newsletter Writer) Calls Our Attention to the Relationship Between Lunar Eclipses and Panic Cycles

– ☽ – Lest any creeping bullish bias on my part leads us astray; Steve Puenz put together the chart above regarding panic cycles.

– ☽ – It is undisputed that Full Moons, New Moons, and Lunar Eclipses have a funny way of packing Hospital Emergency Rooms. Whether or not the Moon truly affects the stock market, enough institutional traders with big books believe so, and that is all it takes. This would not be the first or only self-fulfilling prophecy in financial markets. Regardless, we need to carry this forward in our narrative.

On this Daily Chart, Price is Trading in the Bullish Buy Zone of the 0^to 90^ M-Square. If price can break above 90^, it can eventually tag 180^.
On this Daily Chart, Price is Trading in the Bullish Buy Zone of the 0^to 90^ M-Square. If price can break above 90^, it can eventually tag 180^.

– ☽ – At the Daily Chart level, the 22-week trading range is still roughly 3750 to 4200. The market will open around the middle of this range this morning.

– ☽ – But if the market continues higher, all our turn windows were accurate as the swing low remains intact as of March 13. If not, rallying into the March 21 Spring Equinox proved fatal, as I pointed out in previous writings.

– ☽ – And even with the failing bank news, if the Master Cycle (still maintaining an 80%+ correlation) reasserts, then the March 13 low becomes dust in the wind, and it will all turn out as we forecast as far back as November.

– ☽ – Of course, that is a very big “IF.”

– ☽ – Traders will BLSH (Buy Low, Sell High) until there is a strong breakout from either direction of the balance range. Don’t forget your Balance Rules.

– ☽ – While BTFD (Buy the F’ng Dip) was the old mantra, STFB (Sell the F’ng Bounce) may replace it.

– ☽ – As noted above,  last week’s poor bullish follow-through from the previous week was disappointing. Poor follow-through and reversals are hallmarks of a trading range.

– ☽ – For the week ahead, traders will see if the bulls can create another follow-through bull bar.

– ☽ – Stalling again around the 20-week exponential moving average maintains the status quo.

– ☽ – Tee up your Gap Rules this morning. Let’s see if the price can conquer the 90^ line around 4028.50.

As always, be careful. The Trading Room will be live Thursday. On the other days this week, my live charts will be up most of the time, and I will pipe Rose into the room on Wednesday. I am traveling, so bandwidth can be an issue. I will have a two-gig pipe for Thursday, so we can trade if our overnight friends don’t steal all the thunder.

A.F. Thornton

Higher for Shorter?

S&P 500 Futures - Half-Day Chart With Million Dollar Squares and Algo Trigger
S&P 500 Futures - Half-Day Chart With Million Dollar Squares and Algo Trigger

Good Morning:

 -☿- I will be in the Trading Room within 30 minutes after the NYSE Open and for the first few hours of trading afterward. I will be calling out trades on the 15-minute chart. I will be on the mic – so there will be very few timely text alerts. Why not consider a free trial this morning?

 -☿- The Founders Group moved our Archimedes hourly and daily strategies to cash earlier this week at 4027.75.

 -☿- The call was manual (not algo-driven). We perceived the exit as a good time to take profits and go to cash before the Fed announcement slated for yesterday.

 -☿- While it was not necessarily our recommendation, our more aggressive Founders Group compatriots shorted the market.

 -☿- Our practice is to move to cash before ultra-significant economic events. Yesterday’s Fed announcement was one of those events.

 -☿- Our exit decision was affirmed after yesterday’s 0.25% rate hike. After turning South from the WEM High, the algorithms formally painted a sell signal near the close at 4021.75. The summary of the Fed’s comments indicated higher rates that will begin to come down sometime in 2024.

 -☿-  And we still see the arguments tipped slightly toward the market grinding higher from the March 13th low through May.

 -☿- Granted, the market’s advance and slope have been somewhat weak, but that sometimes happens when the sectors are mixed.

 -☿- And if you like banks or other financial sector members for the long term, do you buy on the canons or the trumpets, as Ben Franklin would say?

 -☿- At a minimum, the triangle on the Monthly S&P 500 Index Chart indicates confusion – bulls and bears trading leadership with neither dominating.

 -☿- But our edge is that our algorithms will tell us what to do and when. They are in cash/short signals for now.

 -☿- It is simply the case that the algos moving swiftly back to buy mode would not surprise us. That is my unscientific opinion.

 -☿- And granted, it does feel like everything, and I mean everything from stocks to bonds, is living on borrowed time. And they may very well be.

 -☿- But I have learned over many years that even when we expect a storm, it takes longer than we might ever have expected for the storm to arrive. And it would be a mistake to jump the gun.

 -☿- Bad as it is (and it is really bad), our country has survived worse. The stakes are high, but many white hats are doing the hard work of preserving our country and turning it around behind the scene.

 -☿- As one small example, the Arizona Supreme Court ordered signature verification for Kari Lake last night.

 -☿- If we had to predict, the “crash” everyone expects may not arrive until the 18.6-year cycle peaks sometime in 2027. And the rally into that “crash” could be something to behold, not unlike the feverish rally into the 1929 peak. We shall see.

 -☿- Meanwhile, with the Fed out of the way, let’s follow the Archimedes Algorithm and the price action. We will know what to do and when. At least the 200-day line is still alive on the cash SPX chart.

 -☿- And when the crowd is as bearish as they are now, instinctively, it makes sense to consider the other side of their trade, especially if our algorithms say so.

 -☿- The S&P 500 Index macro fulcrum remains at 4000. 

A.F. Thornton

The Equinox Arrives? What Does it Mean?

Good Morning:

 -♂- Since our last correspondence, the Founder’s Group has enjoyed several profitable round trips on the Archimedes Hourly Strategy. The Algo remains in an Archimedes Daily Strategy buy signal at 3895.25 triggered on March 15th, slightly before 1 pm EST.

 -♂- As usual, we are looking to the 5-day line currently at 3981.75 to potentially add to positions if the Archimedes Algorithm continues to point north. While somewhat paradoxical, a material and sustained violation of the same level triggers an exit of our entire position from the market. In a sense, that is why we call it a low-risk entry or inflection point.

 -♂- Not much is at risk when we buy under the 5-day line as the first stops are triggered. We don’t place formal stops on existing positions right there anyway, as we have a proprietary way of handling our positions. As mentioned, stops are a last resort or fail-safe measure for us. We prefer to exit profitably on waning strength. 

 -♂- Today, we plan to sell our entire position into the NYSE Open so we are in cash for tomorrow’s Fed announcement. Our systems are not telling us to do so, it is a call that emphasizes our first principle of capital preservation. We don’t mind returning to the market at higher prices. We already have triple-digit returns from January 1st.

 -♂- It seems unwise to risk navigating the volatility that is sure to follow the most important Fed interest rate announcement in recent times. The Fed’s Hobson’s choice may further incite inflation in favor of saving the banking / economic system. On the other hand, the Fed risks its credibility by not continuing the course of higher interests rates for longer to fight inflation. And let’s face it, an economic calamity is what the Ruling Cabal wants to reset everything to global communism anyway.

 -♂- What a cluster&*^% all of this is. The Fed, Treasury, Congress, and the Defense/Intelligence apparatchiks have created a nightmare both through incompetence and perhaps by design. We are committing economic suicide as competitor countries (e.g. China) are poised to clean up due to our egregious errors.

 -♂- And then President Trump is slated to be arrested today. If so, we join the ranks of Banana Republics everywhere. Perhaps Argentina is a good model as to where we are headed. Their inflation has been 100% over the past year.

 -♂- So there must be a diversion – a major distraction! The Ukraine War is failing. Banks are collapsing. Don’t be fooled. Keep your eyes on the economic ball and the War Mongers.

 -♂- Ukraine, China, Russia, World War III, inflation, collapsing banks, and the economy – these things matter when the Cabal tries to suck the air out of the room by arresting President Trump or through any other distraction.

 -♂- Today is the Spring Equinox and New Moon for the new Lunar Year. Happy New Year! If the market is rising into this special date, it can reverse. No guarantee – Spring is normally a time for optimism, and the market typically turns higher here. 

 -♂- Notably, our market proxy, the S&P 500 Index, has turned higher almost to the hour of the 60-Year Master Cycle turn on March 13th. But what is “normal” these days? Carry the possibility of a reversal south in your narrative, but realize that it would be the exception to the usual rule.

A.F. Thornton

Heaven or Armageddon? What Comes Next?

Good Morning:

♁- To suggest we are at a critical moment is an understatement. Let’s examine the stock market’s location using our usual proxy, the S&P 500 Index. Because I mainly trade futures, I will use the front-month Emini continuous contract. Today is a good time to step out and look at the big picture.

♁- Let’s take it a step at a time, beginning with a look at the triangle consolidation that has been underway since August 2022:

S&P 500 Index Futures - Monthly Chart of Triangle Consolidation from August 2022 to Date (click to enlarge).
S&P 500 Index Futures - Monthly Chart of Triangle Consolidation from August 2022 to Date (click to enlarge).

♁- What is a triangle if not confusion and consolidation? As of the last seven months (7 being a key number for the stock market), bulls and bears have had equal power and have been battling for control.

♁- For our purposes, the most important question is, what does it look like if the bears win? A picture can replace a thousand words:

Applying Elliott Wave Principles, and Assuming that Price Stays Below the Red 45^ Line in the Geometric Structure, the Price is Likely to Step Down the Line, Moving in the Direction of the Lower 100-Year Channel Lines As We Forecast at the Beginning of 2021. (Click to enlarge).
Applying Elliott Wave Principles, and Assuming that Price Stays Below the Red 45^ Line in the Geometric Structure, the Price is Likely to Step Down the Line, Moving in the Direction of the Lower 100-Year Channel Lines As We Forecast at the Beginning of 2021. (Click to enlarge).

♁- A good target for the panic cycle implied by an inversion of the Master Cycle is the midpoint of the 100-year channel shown above.

♁- Keep in mind that this is a monthly chart. It moves very slowly until it doesn’t. You can analogize it to the two previous bears starting in 2000 and 2007 out to the left side of the chart. Both of those declines exceeded 60% on the futures contract. Remember that this is a log chart. The current slide will look understated compared to the previous two bears.

♁- If we take an average of 60% for the two previous bears and project it to the current bear, we land right in the middle of the current circle (a circle is the three-dimensional representation of a cycle).

♁- Depending on how quickly the price would get there, it would join the middle of the rising 100-year channel, roughly 3000 or so on the S&P 500 Futures contract. Note that this was our original forecast from January 2022

♁- Geometrically, the next market reversal (from the direction leading into it) comes this summer (July) from a monthly chart perspective.

♁- This is not a forecast. With bulls and bears still wrestling for control, prognosticating would be unwise.

♁- But the chart immediately above allows us to examine a possible worst case for a fully invested bull if the price breaks the pattern and stays below the red line. Obviously, a bear would smile ear to ear for the given opportunity.

♁- Right now, and viewed solely from the monthly chart perspective, the battle is about breaking above that falling red line for the bulls and maintaining price underneath the line for the bears.

♁- Note that investors must be careful in triangles. Often the first breakout fails, and the market completely reverses, eventually breaking out in the opposite direction. Your tactics must take this risk into account.

♁- And don’t forget that any break below 180^ will cause the price action to accelerate. It falls off the proverbial shelf, and gravity takes over.

♁- All of this raises the question, do we abandon the 60-Year Master Cycle over a couple of poorly managed banks and a poorly managed country? Sorry for the loaded question, or the answer would be an obvious “yes.”

♁- A better way to analyze a potential cycle inversion is to realize that brief anomalies will occur only to see the cycle resumed. Also, Forecasts derived from 60-year-old data have inherent limitations. As examples. planetary differences and non-trading days (such as weekends and holidays) don’t always align.

♁- Below, you can see the difference between the full 2023 forecast for the Dow until the end of March compared to the current actuals:

Some Master Cycle Forecast Anomalies in the Dow Jones Industrial Average (click to enlarge). Source Fiorente2
Some Master Cycle Forecast Anomalies in the Dow Jones Industrial Average (click to enlarge). Source Fiorente2

♁- Our combined indicators brought us to cash (short) well before recent declines. We are in the catbird’s seat. I am not up for a sudden move into the markets now. I am primarily watching the bond market and the MOVE (bond volatility) Index.

♁- Here is the 60-year Master Cycle if we allow for the inversion:

Master Cycle Forecast Footed to the One-Year Cycle or 1903 Panic Cycle Inversion (click to enlarge).
Master Cycle Forecast Footed to the One-Year Cycle or 1903 Panic Cycle Inversion (click to enlarge).

♁- The Consumer Price Index was just released. It was in line with expectations but still 6%. It was lower than last month’s 6.4%. I don’t think this “meeting of expectations” necessarily boosts the market. For the moment, inflation is less of a concern than systematic risk.

♁- For the most part, the S&P 500 is testing the neckline breakdown of the Head and Shoulders topping pattern at 3925. If the market rejects the price by failing to close above it, we have a 300-point breakdown target of 3625.

♁- Not that it matters much, and we will let the price action guide us, but I am still expecting a bottom around mid-month, an attempted rally into May, with Armageddon to follow. But we cannot trade my opinion, right? Or at least we shouldn’t.

♁- You remember my “opinion” track record? 50/50. How about the Archimedes Algorithm? More like 85%+. Who/what would you rather follow? 

♁- We remain 100% cash or short for our more aggressive friends. But we want to throw our line back in the water when the opportunity ripens.

A.F. Thornton

The System is Straining

Good Morning:

♄- I am reserving most of my observations for premium subscribers, but I want to share a few thoughts with you.

♄- Two of my recent concerns had been a Master Cycle inversion and a credit event. We may have both, with banks collapsing all over the place. The small to regional banks are the most vulnerable.

♄- Having started and owned a bank, my perspective is from an insider’s point of view. 

♄- Once again, the banks suffer from errant Fed policy and grievous Congressional spending, encapsulated in a Fourth Turning and War Cycle.

♄- The Fed incentivized banks to put their funds in long-term treasuries to keep the Congressional spending going and to shore up the U.S. Dollar. It would have been better to incentivize banks to lend.

♄- But the Federal Government needed the money because the backfire from stealing Russian reserves due to the unwise Ukraine sanctions meant that very few countries wanted to buy our treasuries anymore. See how this works?

♄- The purchased treasuries were returned to the Fed overnight in reverse REPO transactions for a measly  0.50% interest payment.

♄- When rates go from 0% to 5% as now, especially this rapidly, the principal value of the treasuries decreases if the banks want to sell them before they mature in 10, 20, or 30 years. Some instruments have dropped 25% in value if the bank wants to sell early.

♄- The banks must adjust their balance sheets to reflect the temporary principal loss even if they don’t want to sell the securities. They call this “marking to market.” In marking to market, the banks need more money to meet their regulatory capital.

♄- So Silicon Valley Bank, the 20th largest bank in the country and a top-rated bank until a week ago, disclosed that they needed to raise a few billion to shore up their balance sheet. When their uninsured depositors (96% of their deposits) realized that the bank’s viability was in question, they pushed a button to move their funds (no lines when there is a run on the bank as in the old days). It is all electronic now.

♄- In the circumstances, the bank must sell its treasuries early and realize the loss to meet depositor demands. As they take the beating without new capital, they eventually run out of funds because they don’t have enough money to meet the needs of the “run on the bank.”

♄- So, the Silicon Valley Bank bank and several others collapsed Friday. The Feds stepped in and put the insolvent banks in receivership.

♄- Over the weekend, it became clear that the entire banking (and brokerage) system could collapse this morning. In an emergency meeting Sunday, the Fed agreed to lend against the full value of bank treasuries to prevent a run on other banks. You see, 96% of all bank deposits in the country are uninsured.

♄- The overnight futures market responded favorably to the Fed’s emergency move, but the Globex equity futures market is at new lows this morning.

♄- Anything can happen, including a complete panic. A panic resonates with the 1903 panic cycle and tracks a full inversion of the 60-year Master Cycle.

♄- Friday, the Master Cycle dropped to an 80% correlation. As I mentioned in previous writings, anything less than 80% constitutes an inversion in our discipline. So we are prepared. 

♄- Our last sell/short signal was 4069.75 on the Archimedes Hourly Strategy and 4038.25 on the Archimedes Daily Strategy last Monday and Tuesday. So our subscribers are either in cash or short.

♄- We will now look for a buy signal. We will know when we see one. But because of where we are in the cycles and the time of year, remember that we are likely ending something here rather than beginning something anew. The third anniversary of the Covid Crash low is in a few days. The number “3” and third anniversaries are important in Kinectics.

♄- The Room will have charts and comments posted today, and we will trade on Thursday this week. Please consider a free 7-day trial subscription to help guide you through this.

A.F. Thornton

Lowering the Boom

Good Morning:

♆-  Fed Chairman Powell whacked the stock and bond markets with his testimony yesterday. 

♆-  Our second strategy, the Archimedes Daily, went to cash at its 4038.25 stop to close out the 2/2 buy signal. The hourly strategy had returned to cash/short the previous day.

♆- All subscriber strategies are in cash (or short for more aggressive subscribers).

♆-  Subscribers received the live sell alert yesterday by text, giving them several chances to exit before the market collapsed in earnest.

♆-  Apparently, the Fed did not read my notes yesterday. I thought they would goose the stock market until the next meeting, then take the gains back. I could not have been more wrong.

♆-  I suppose with his congressional testimony, Fed Chairman Powell took his remarks more seriously. He is still trying to fix the grievous errors that brought us this inflation in the first place.

♆-  Anyway, there were no surprises. The Fed is doing what it said it would do. And I suspect they will keep going until something breaks. I am expecting some “credit” crisis or event to end this. 

♆-  Of course, a country firing off a Nuke or EMP, or perhaps China invading Taiwan, remains a proverbial Black Swan event. Having said that, it would not be a Black Swan if we could anticipate it. The Swan will likely be obvious, with nobody even contemplating it now. The law of unintended consequences in full regalia.

♆-  I would caution that similar price setbacks to yesterday occurred at the previous intermediate lows in this bear, and the market immediately reversed higher. We are on the nominal Hurst 20-day cycle Future Line of Demarcation, a perfectly valid type “B” interaction.

♆- Let’s follow the Archimedes Algorithm and go where it takes us. 

♆-  As I have been cautioning, even with all of the tools at our disposal, the risk of a cycle inversion keeps us from having strong, bullish (or bearish) convictions.

♆-  It was about this time in 1903 that the financial panic ensued. That was two Master Cycles ago. 

♆-  W.D. Gann commented that years ending with a “3” typically start a bear year, but the rally from the 2nd year may run to March or April before the bear ensues (“or reasserts itself as in 2023”). [Emphasis Added].

♆-  Cycles can extend, contract, and invert from time to time. Anomalies can occur as well. So, always watch the chart in front of you – what the market does matters most.

♆-  The weight of the evidence is that the tape was/is turning bullish, only to be negated by closes below the 2/2/ low at 3925. There is no apparent reason for the bullishness, but there never is at this stage.

♆-  As I mentioned when the rally began last week, “V” bottoms are rare, and the low would be retested. Here is the retest. But the market low on 2/2 may have been a retest of the Helio cycle low and turn the week before. So yesterday’s low could be it.

♆-  In the optimistic case, the market will not reach the 2/2 low. Instead, it will pick up sooner from a rising trendline or the Hurst 20-day cycle FLD.

♆-  In another case, the market will run all the stops under the 2/2 low, scare the crowd, then turn higher. Recall the old-style bull market behavior that seems so long ago.

♆-  In the worst case, kiss current prices goodbye. The market has not yet found the bear market low and meanders to the measured move around 3200.

♆-  I have always expected the worst case since my January 2022 outlook. A generational trip to the 100-year channel would seem in order.

♆-  Most recently, I have been expecting the Southern route to begin after a rally into May. I am still on that path as long as the 3/2 low holds. Short term, I have been looking for a rally, at least into the day before the Spring Equinox – 3/20, as long as the Master Cycle does not invert.

♆-  In my experience, intervening news or events such as Powell’s speech only temporarily derail the market’s preordained path.

♆-  We are still working on the Website and all the new services – and I won’t always put out public comments here any longer, but believed a few comments were in order after yesterday’s Fed speech and market rout. Fed Chairman Powell has a second day of testimony today. Let’s see if he tries to soften the blow.

♆-  Don’t forget the jobs data coming out today and tomorrow. In the wacky world of finance, to “fix” the inexcusable inflation at hand, it helps to put a lot, and I mean a whole lot, of people out of work.

♆-  How do you feel about Central Planning? Does it seem to work? I think not. And this is what the Globalists want to foist on the entire world through the commie World Economic Forum. President Orwell is about to turn our entire healthcare system over to the corrupt World Health Organization. Brussels will soon be telling your local doctor what to do, and they can seize your land if they don’t like what you are doing with it. You cannot even make this stuff up. It is so frightening.

A.F. Thornton

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