Category Navigator™ Signals for Swing Traders

There is no perfect vacation for a trader. So let me drop a quick note.

The trading range I had expected is well underway. And we did bounce on the “Options Expiration” pivot I talked about on Sunday night.

The Navigator shifted back to a buy signal at 4531.75 on Monday morning. You can see the turn on the daily chart above, and we saw some follow-through yesterday and today. Here is a granular look at the buy signal and turn:

The Founders Group is on vacation, so we are not partaking in the run these past few days. As we say at the office, there is always another train leaving the station.

We are now at the top of the trading range – or close to it. Given the brick wall that we have seen at 4700 these past four weeks, it is doubtful we will see a breakout. Also, we are near the Weekly Expected Move High of 4708 on the cash index.

That we might not break out is just an opinion, of course. But the statistical probability of a breakout failure is 80%. We will see how it goes, but I would not be surprised to see another loop back down. Price action always rules opinion anyway.

A lot of this price movement is short covering. Sentiment got too negative for further declines, as I pointed out last Sunday. And we always have to be mindful of manipulation in light, holiday volume. So it is not advisable to jump in at the top of this range.

Perhaps the market is in the process of forming an ascending triangle.

We know from history that when Fed policy begins to shift, the market tends to stall into a trading range. Markets don’t typically roll from bull to bear immediately. Usually, a trading range precedes the transition.

Anyway, this market has yet to violate the recent bull uptrend and may find support again on the trendline if we loop back down. Therein lies your makings of an ascending triangle.

The bullish price action belies all this talk of crashes and such that I read. Nevertheless, I fully expect considerably more volatility in 2022 than we have experienced recently.

I hope this quick update keeps you alert as we get ready for the new year.

Again, Merry Christmas and Happy New Year

A.F. Thornton

I know I said I wouldn’t, nor did I want to monitor anything over Christmas, but the Founders Group is back to a 40% position in each of SPY, and DIA January ATM calls for a total of 80%. As Chairman Powell spoke, we entered the calls when the SPY was 463.73, and the IWM was 356.25, respectively. As I had suspected, the Fed was a bit more aggressive than anticipated, so the market is happy for now. Welcome, Santa Claus!

Since this is a swing position, you can enter at the close today or even on a small pullback tomorrow. The market is racing on short-covering at the moment, so it makes sense to wait for the short-covering to calm down. You may be able to enter in the morning.

I am hoping we can hold these positions for a few weeks. With the Fed meeting out of the way, there is not much negativity between now and year-end.

A.F. Thornton

The Founders Group is adding another 5% each to the existing SPY and DIA calls here on the five-day lines, 467.75 and 357.25, respectively. This brings each position to 30% for an aggregate 60% commitment to the markets.

Be mindful of the leverage. These are big boy positions.

The market moved back into the balance range per the morning discussion and we are entering at the range bottom, coinciding with the five-day line.

A material close below the five-day lines remains the stop.

A.F. Thornton

The Founders Group are long calls equivalent to 469.50 on the SPY (S&P 500) and 359.25 on the DIA (Dow Industrials) at the close. These trades put our Navigator Swing Strategy long at 25% in each position, with 50% remaining in cash. I will catch up with all of you over the weekend.

A.F. Thornton

Let’s give our stops some room – basing them on an hourly close below the stop level. I will advise you if they are triggered.

The Founder’s Group just nibbled on a swing buy with the DIA at 359. We used a January monthly expiration call debit spread. We targeted a 25% position with a 358.25 stop. Futures or shares of the cash index are fine too, depending on your tolerance for leverage. This brings the Founder’s Group to a 50% swing position.

Unfortunately, this morning, the Founders Group has been stopped out of both the IWM and DBC initial buy positions at the previously communicated stop levels. Our group stuck a toe in the water on the sell-off into the five-day line this morning.

The positions rallied but then returned to the line, which is not holding at this writing. That also means that the 5-day line on both positions is failing, pointing to further declines. Both ETFs are still on our radar, but we hope to acquire them now at lower prices.

A.F. Thornton

The Founders Group just took a 2.5% position in the IWM Russell 200 Small Company Index ETF. We used the 17 December calls with the $240 strike price. This represents half of our target position. We will look to add the other half at the close if all goes to plan. We will use 239.50 as a stop, and the initial target is the recent high at 244.50. We will see how it behaves there.

The Founders Group just took a 2.5% position in the DBC diversified commodities ETF. We used the 17 December calls with the $20 strike price. This represents half of our target position. We will look to add the other half at the close if all goes to plan. We will use 21.25 as a stop, and the initial target is the recent high at 21.75. We will see how it behaves there.

The Navigator Algorithm drifted into a sell signal today, but we do not have a significant cycle trough presenting until the end of the month. Even that one is relatively minor compared to the October low. Our best judgment is that the market will go sideways or experience a relatively minor dip here. And, we may yet get another leg up before some additional weakness presents late in the month.

Of course, the market will do what it wants to do, so we will be monitoring the price action carefully before making any decisions. We are 100% in cash at the moment. But there is no harm in communicating a heads up. The IShares Russell 2000 Small Company Index ETF (IWM) and Invesco DB Commodity Index Tracking Fund ETF (DBC) are on the Founder’s group radar to pick up in this pullback.

Even if the major indices continue to correct or move sideways, the IWM and DBC could still move higher.

We will be focusing on December 17th monthly at-the-money calls for both potential opportunities. The DBC calls are less than ideal, as they are thinly traded, so the spread to buy and sell is high. But liquidity is not an issue if you are buying just a few of them. It is, however, a bit more of an expense hurdle on both ends that digs into profits (or expands losses if the investment fails).

Buying shares of the DBC ETF outright is the best course if you don’t need the call leverage. The initial upside target is 22.75, or a 6% gain from today’s close at 21.48. Hopefully, we can enter at a lower price, but the ETF has not given much ground since it bottomed last Thursday.

The DBC can serve as a good inflation hedge in this environment. The fund invests in a diversified basket of commodities, including both agricultural and energy. This exposure could be critical in the weeks and months ahead. If money managers shifted even a small allocation to commodities, this asset class could move parabolically higher. In this regard, acquiring some shares outright with a longer-term hold plan could be advisable.

We will keep you posted.

A.F. Thornton