THE BOTTOM LINE
The bears continue to present an accurate, fact-based case grounded in historically excessive bullish sentiment, extreme valuations, and other analytical measures—all pointing toward the eventual onset of a major bear market to balance the preceding bull run in both magnitude and duration.
However, facts remain no match for the bulls’ convictions. Their belief continues to propel the market higher, as each new all-time high reinforces confidence that even greater highs lie ahead. This self-reinforcing, virtuous cycle is likely to persist until the balance of supply and demand—tracked by the Lowry Research system—shifts meaningfully, or until a new “BIG CHILL” warning appears in our proprietary indicators.
While seasonal factors may introduce short-term volatility, the prevailing odds still favor continued attempts to reach new record highs. That said, at these nosebleed valuations, conditions could change swiftly and dramatically.
Beliefs vs Facts
My father once told me never to argue facts with someone’s beliefs—because their beliefs will always outweigh my facts. The stock market continues to prove his wisdom. The long-suffering bears may be correct in their facts, yet they remain tone-deaf to investors’ absolute belief that the great bull market will only accelerate higher, turning all manner of historic valuation and sentiment precedent on its head.
Psychologically, this becomes a self-fulfilling, virtuous cycle: each new all-time high reinforces the underlying belief, which in turn fuels even more new all-time highs. Irrational as that may be, it also proves John Maynard Keynes’ famous observation that “markets can stay irrational longer than you can stay solvent.”
Fueled by belief—after a brief pause noted in last week’s update that merely refreshed demand—the stock market reached another all-time high this past week. So did Warren Buffett’s favorite valuation metric, which, simply put, is the total value of all stocks divided by GDP. A reading near two is considered extremely overvalued, a level that has historically preceded bear markets. As of Friday’s close, the Buffett Indicator stood well above two.
Parabolic markets can always become more parabolic—but they always end the same way, and it’s never pretty. Screenshot-294(above) certainly captures a parabolic market in motion, but who can say when too much excess finally becomes too much?
TATY — A REPRESENTATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS
TATY is shown above in yellow with the S&P-500 shown in red and blue candle chart format. TATY finished the week at 145 reflecting firm demand. In the absence of a “BIG CHILL” warning, investors should not be surprised if more new all-time highs are in the offing, which is consistent with the favorable balance of supply and demand being registered in key long term Lowry Research indicators. Seasonality may stir volatility but for now the odds still favor attempts to assault new all-time highs, a host of sentiment and valuation indicators at excessive historic levels be damned.
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 continues to negatively diverge (down sloping dashed magenta line) with the rising price as it has since the summer of 2024 signaling that perhaps not all is right with this ongoing great bull market. This is the longest negative divergence for this indicator and aligns its message toward all the excesses, which continue to concern the bears. Look the bears make a solid factual case framed in an accurate historical context, but that case will not likely be rewarded until the self-fulfilling psychological bull fever cycle is broken and the emerging belief becomes “sell the rallies” instead of the present “buy the dips”. By the time that happens a new “BIG CHILL” warning will likely have tipped us off, that change is afoot.
STERLING — A REPRESENTATIVE OF A FAMILY OF SHORT TO INTERMEDIATE TERM TRADING INDICATORS
STERLING is shown in Screenshot-290 in the upper panel with the S&P-500 eMini contract shown in the lower panel. STERLING just touched a high and has no maturing negative divergence in place, which suggests more attempts to assault new all-time highs are likely.
