78 YEAR RATE CYCLE & STOCK MARKET TOP

THE BOTTOM LINE

The time consuming, slow moving, complex and overlapping countertrend rally off the October 2022 low continues to frustrate bulls and bears alike. However, in the context of the beginning of a new long cycle in interest rates following the recent completion of a 78 year interest rate cycle, then the intersection of the emerging rate cycle and the emergence of a bear market of a potentially very large degree implies a case can be made for the first countertrend rally in equities following the first leg down in a new large degree bear market may linger near the all-time high longer than a run of the mill bounce in a lesser degree bear market. The intersection of these two ongoing events in rates and equities implies more than a “business as usual” situation with very serious implications for the preservation of wealth.

Given the status of our supply and demand indicators, the conflicting information emanating from several Lowry Research indicators, uncertainties revolving around the safety of global financial institutions, and geopolitical uncertainties, we remain content to continue to adhere to our strategy of rolling over virtually risk free three- and six-month T-bills yielding 5% (plus or minus) until better risk adjusted opportunities are created by the bear market. Bear markets ferret out previously unknown weaknesses in the global financial system, which then often “spontaneously” collapse triggering a new crisis of uncertainty. Markets respond negatively to uncertainty, especially to crises where it is difficult to quickly calculate the extent of the potential risks of contagion. These are the realities of the world we now live in, making risk management our highest priority.

78 YEAR RATE CYCLE & STOCK MARKET TOP

Shortly after interest rates recently went negative and stopped going down, a 78-year interest rate cycle bottomed after 39 years rising and 39 years declining. A new rising interest cycle has begun more or less coincident with the January 5^th, 2022 all-time high in equities, which a case can be made for as being THE top of a very large degree bull market, which emerged out of perhaps the August 1982 low although there are other equally valid candidates for THE bottom.

The January 5^th all-time high in the S&P-500 was followed by legs of powerful declines into the October 2022 significant, but not a classic panic/capitulation/cathartic Lowry Research type bottom from which new bull legs typically emerge. Given the lack of a panic/capitulation/cathartic Lowry Research type bottom at the October low, then we have been treating the recovery rally as a rally in an ongoing bear market, and the characteristics being generated by the rally do fit the profile history suggests for a bear market rally.

This slow moving, overlapping, countertrend rally has created frustration on the part of bulls and bears alike, but given the intersection of a changing long cycle in interest rates coincident with possibly the commencement of a large degree equity bear market, then a case can be made for the first bear rally in the new potentially large degree bear market to likely loiter near the previous all-time high and in the process resulting in multiple episodes of nostalgic euphoria causing the bear rally to stretch out over a longer period of time before expiring.

TATY — A REPRESENTATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

TATY is shown above in yellow with the S&P-500 overlaid in blue and red candle chart format. TATY finished the week a bit lower than last week at 142, but still in the red zone. However, this marginally lower close has created a very short-term negative divergence (down sloping magenta line) with the rising price, which may need more development before it can suffocate the price rally. However, one should keep in mind that “the red zone is where bear rallies go to die” and in the days ahead that observation may be proven once again.

SAMMY — A REPRESENTATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

SAMMY is shown above in yellow with the S&P-500 eMini futures contract in red and green candle chart format. In like manner as TATY, a negative divergence (down sloping magenta line) has developed with the rising price. If this negative divergence continues to develop, then the price rally may begin to falter.

STERLING — A REPRESENTATIVE OF A NEW FAMILY OF SHORT TO INTERMEDIATE TERM TRADING INDICATORS UNDERGOING TESTING

STERLING is shown above in the top panel with the S&P-500 eMini futures shown in the lower panel. SAMMY has not yet developed any negative divergence with the price, so the price may continue to rally in the days ahead. If the negative divergences developing in TATY and SAMMY continue and STERLING rolls over to negatively diverge with the rising price, then at least the current leg up in the countertrend rally will likely begin to weaken and then rollover to chase the indicators lower.

Screenshots-1194 (above) and 1195 (below) show the S&P-500 eMini futures contract and cash index struggling to breach their respective lower resistance lines. With negative divergences now developing in TATY and SAMMY this struggle may become more acute. In any case there are now preliminary signs that the upper resistance dashed line may be too much of a climb for the rally in the price.

Screenshot-1196 (below) has been shown many times previously with detailed explanations of the implications. If the countertrend rally gives out of gas in the days ahead this chart will be updated with copious explanations of the implications. For now, the color-coded Fibonacci grids projected off the March 9, 2009 low and the March 23, 2020 low continue to be zones of support and resistance. The crudely drawn in dashed white lines represent one way the bear market may resume once the bear rally expires, but there are other equally valid paths.