The Bottom Line
If the stock market is indeed topping out, it could live up to the ominous reputation of a Friday the 13th. While Lowry Research indicators remain somewhat constructive, several warning signs suggest caution is warranted: a potential “BIG CHILL” signal is brewing, a diagonal triangle pattern may be nearing completion, and three key supply and demand indicators have failed to confirm the rally off the April tariff low.
Given these conditions, investors should proceed carefully, and traders may want to consider reducing long exposure. Even if the market reaches new all-time highs, the underlying demand may not be strong enough to sustain them without broader confirmation from supply and demand metrics. Until clear evidence of strengthening emerges, the advantage shifts to the bears.
Summer Swoon
Last week’s update suggested the potential for an abrupt market reversal and decline, likely before the July 4th holiday. While I don’t rely on traditional chart analysis—since it often overlooks the foundational principle of capitalism, the Law of Supply and Demand—I do recognize that some chart patterns, through years of testing, have demonstrated statistically useful outcomes.
Among these, triangles and diagonal triangles (rising wedges) are the most reliable. Though both are relatively rare—and diagonal triangles even more so—when they form correctly, they can be quite profitable. That said, these patterns have become less consistent in recent years, possibly due to program trading.
According to technical theory, diagonal triangles are ending formations that represent the “final movement in a sequence.” They appear as rising wedges and follow specific structural rules that differentiate them from random price action. I’ve been monitoring one such formation since the May 23 low, and it has followed the textbook pattern closely. If complete, we should expect a swift, waterfall-like decline—typically retracing to the origin of the pattern, in this case, the May 23 low.
The key takeaway is the implication of a final movement within the current sequence, especially as supply and demand indicators are flashing caution near the February all-time high. Coupled with an ongoing “BIG CHILL” warning, these signals suggest a significant market top could be forming as we move into summer and fall.
If the diagonal triangle holds, a sharp decline is likely imminent. If not, the pattern may dissolve, and prices could instead push toward new all-time highs. Keep in mind: in recent years, many promising triangle setups have collapsed late in development. So while this may look like a clear setup—it isn’t a layup until it is.
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 red and blue candle chart format. TATY finished the week at 133 short of the red zone, which appears to be an emerging resistance area for TATY. If TATY cannot soon muster the strength to rise above the red zone, then a completed “BILL CHILL” warning may be issued. If the April tariff low was the beginning of a new leg up in an ongoing bull market, then TATY should be gathering strength and leading the price higher. A new leg up in an ongoing bull market implies TATY will at some point build out bottoms in the red zone and tops approaching, or in the blue zone surrounding the 160 level. If TATY is rejected in, or near the red zone, then advantage bears.
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 is emphatically painting out a picture favorable to the bears, and has been for months dating to last summer. After setting an all-time high last summer, SAMMY has consistently constructed a huge negative divergence with the still rising price. The negative divergence even steepened, which is shown as a dashed red and magenta down sloping line on the SAMMY chart. This past week, after being rejected at the dashed red negative divergence line, SAMMY turned sharply lower, which is a favorable development for the bear case. There is no way around it, SAMMY is screaming that something is wrong with the attempt to assault new all-time highs. Until this negative divergence is resolved, then advantage bears.
STERLING — A REPRESENTATIVE OF A FAMILY OF SHORT TO INTERMEDIATE TERM TRADING INDICATORS
STERLING is shown in the top panel of Screenshot-185 with the S&P-500 eMini futures contract in the lower panel. The negative divergence in STERLING steepened sharply this past week in dramatic fashion. Until STERLING bottoms and perhaps forms a positive divergence with the still declining price, then STERLING will grade out in the negative. So, this past week all three of our key representative indicators grade out as weak, to weakening as the price struggles range bound in a postulated diagonal triangle marginally below new all-time highs, not a reassuring picture for the bulls.
