THE BOTTOM LINE
The bear market rally off the October low appears to still have unfinished business to the upside, which may take out the February high at S&P-500 4195.44. However, if the rally fails below S&P-500 4195.44 and then 4061.22 is breached on a closing basis, the odds will shift in favor of this leg of the bear market rally having been completed. The foundation supporting the bear rally continues to be weakened by more and more stocks peeling away from the ongoing rally attempts leaving only a handful of mega-cap stocks supporting the rally attempts. This is not a healthy situation for the struggling rally.
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.
A RANGE WITHIN A RANGE
The stock market as measured by the popular indexes remains mired in a tight range, which began in late March, some 30 market days ago. This range is also part of a larger range, which began at the August high and bounded by the October low. These two ranges are still best characterized as containing multiple bear market rallies and declines due to the overlapping nature of their structures and the gradual but persistence of more and more stocks failing to rally within the capitalization weighted indexes. The stock market is being supported by only eight mega-cap stocks while the other stocks comprising the indexes have already rolled over into their own individual bear markets.
Lowry Research analysis shows example after example of this peeling away from the rally in the indexes, as well as dozens of our own proprietary supply and demand indicators. These indicators are NOT currently positioned to suggest that the October low was the start of a new bull market. On the contrary, a host of indicators are suggesting a growing fragility in the support under the bear market rally.
A marginal new high above the February high at S&P-500 4195.44 remains a possibility for the rally off the October low, but any such rally would not likely have much staying power, if the trend in more and more stocks rolling over into their own individual bear markets continues. While a new high for the rally off the October low may yet be touched, it is not required and a close below S&P-500 4061.22 would increase the odds that the countertrend rally has already peaked. If investors sense that the bear market rally is likely expiring, then in like manner as depositors fleeing a troubled bank investors may begin to sell with urgency.
TATY — A REPRESENTATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS
TATY is shown in yellow above with the S&P-500 overlaid in blue and red candle chart format. TATY finished the week at 143 failing once again to register a “BIG CHILL” warning by being rejected at, or near the red zone. This suggests the bear rally likely still has more work to do before it peaks. There is no TATY negative divergence to the price rally currently in place, which also suggests a rally above the February high at S&P-500 4195.44 remains a possibility.
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 overlaid in red and green candle chart format. SAMMY has weakened substantially over the last two weeks and if this weakness persists as the price attempts to break above S&P-500 4195.44, the February high, then a negative divergence would be forming suggesting growing selling pressure on the price. However, for the time being neither TATY nor SAMMY are flashing the imminent demise of the bear rally.
STERLING — A REPRESENTATIVE OF A NEW FAMILY OF SHORT TO INTERMEDIATE TERM TRADING INDICATORS UNDERGOING TESTING
STERLING is shown above in the upper panel with the S&P-500 eMini futures contract shown in the lower. STERLING has acquired an enviable record as a reliable divergence supply and demand indicator signaling both tops and bottoms of a more short-term nature. STERLING has recently begun to develop negative divergences not yet apparent in TATY and STERLING. These negative divergences are shown as down sloping dashed magenta lines on the chart. These negative divergences are objective market generated evidence, as opposed to subjective opinions, that the rally in the price is encountering growing selling pressure, which is invisible to investors watching only the price.
Screenshots-1215, 1216 (both above) and 1217 (below) have all been shown numerous times before with explanations, so they are simply updated here through Friday’s close for your additional information and perspective. Screenshot-1215 and 1216 show simple overhead chart resistance for the S&P-500 eMini futures and S&P-500 cash indexes, respectively. Screenshot-1217 is a big picture perspective of the topping out of the great bull market and the early weeks of what may morph into a great bear market, a bookend if you will to the previous huge bull market, as it is the nature of the stock market to paint out bull and bear markets of similar “degree”.
Screenshot-1217 also has color coded Fibonacci grids emanating from two different significant bottoms, namely the March 9, 2009 low at S&P-500 666 and the March 23, 2020 low at S&P-500 2190. Please notice that the Fibonacci projections off these two different lows are still acting as zones of support and resistance. Once the bear rally is complete, I’ll begin to share more details about the significance of the chart in Screenshot-1217 including some possible targets for the crudely drawn in white lines representing one potential path, there are others, for the anticipated next leg down in the still developing bear market.
