THE BOTTOM LINE
A rally above S&P-500 3911.79 would suggest that the countertrend rally was turning more complex, perhaps extending the formation under construction by weeks. A close below S&P-500 3491.58 would imply the bear market rally had ended at S&P-500 3911.79 on November 1st and the bear decline is resuming immediately with the potential to accelerate lower.
A “TELL”
The stock market analysis for this week is simple relative to the normal complexity for which bear markets are usually known. A rally above the November 1st bear market rally high at S&P-500 3911.79 would imply the rebound rally is likely going to turn into a more complex formation lasting perhaps weeks. A close below the October 13th low at 3491.58 would imply the bear market rally had expired at S&P-500 3911.79 and the price is resuming its decline to new bear market lows with the rising probability of an acceleration lower, caused by more and more investors leaving the “buy the dips” crowd, as a bear market “point of recognition” weighs upon investors. If the latter emerges, then no doubt the election will be blamed, but readers of these weekly updates have been warned that all bear markets have critical points, where orderly declines become a stampede into a rout, the news of the day notwithstanding.
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 131 finally above the caution zone surrounding the 115-125 level, but well short of the red zone surrounding the 140 level. A rally failure in TATY in, or near the red zone would trigger another “BIG CHILL” warning, and the last three of which caught the January 5th all-time high top as it was happening, and the first two subsequent bear market countertrend rebound rallies as they were expiring. So, obviously the appearance of another “BIG CHILL” warning would be an important event in the bear market sequence, which may be in the process of forming another lower high. A “BIG CHILL” warning is NOT required for the bear market decline to spontaneously resume, but if the rally were to turn more complex and time consuming, then another “BIG CHILL” warning may appear as the more complex rally eventually begins to expire. The historic accuracy of this supply and demand indicator is such that one ignores its signals at their peril.
A near term violation of the October 13th low at 3491.58 would likely happen without the benefit of another “BIG CHILL” warning with TATY currently still well below the red zone. However, such an event, a TATY failure to generate enough strength to reach the red zone, would imply perhaps an exceptionally powerful price decline in the offing.
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 was able to generate enough strength this past week to rally above its down sloping dashed magenta resistance line and is now approaching its dashed horizontal red long term resistance line. So, at this point SAMMY is outperforming TATY, which increases the odds that the countertrend rally may turn more complex and rally above its high to date at S&P-500 3911.79, which would extend it days, possibly weeks into the future. TATY normally leads SAMMY, so we have a bit of an odd situation. However, the rally is developed enough to suggest that whatever is going to happen will likely happen sooner rather than later, that is to say a breach of 3491.58, or a rally above 3911.79 to signal the likelihood of a more complex bear rally formation under construction.
STERLING — A REPRESENTATIVE OF A 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 in the lower panel. STERLING has a history of forming positive divergences preceding lows and negative divergences preceding highs, not in every case, but frequently enough to make it a “must” monitor indicator. STERLING is currently a bit overbought but is not generating any significant signals currently.
Screenshots-1035 (above) and 1036 (below) are the S&P-500 eMini and cash indexes, respectively, for your additional information and perspective. Screenshot-1036 shows the price being rejected at a level just above S&P-500 3900, where a former bottom and top formed. The price has found support at the down sloping magenta dashed line, which forms the “either/or” situation discussed in this update. Either the price rallies above resistance, which in turn will likely turn the rally formation complex stretching over perhaps weeks, or a breach of support at the magenta dashed down sloping line leads to a breach of the low to date of the bear market on October 13th at S&P-500 3491.58, precipitating perhaps an acceleration of the decline into new lows for the bear market.
Screenshots-1037 (above) and 1038 (below) have been shown several times previously to introduce clients to the big picture unfolding in this bear market, and its potential to turn into something much more serious than a “run of the mill” correction in an ongoing bull market. These two charts update the big picture perspective through Friday’s close. Remember, a breach of S&P-500 2190 on a closing basis would activate the Fibonacci projection and previous rally support zone horizontal rectangles shown in Screenshot-1038, which would suggest extremely serious global consequences to follow.
