THE BOTTOM LINE
A global bear market in stocks, bonds, currencies (except the U.S.), and some commodities appears to be just settling in; therefor constant vigilance, effective risk management, and wealth preservation will be required until this potential budding financial storm passes, or S&P-500 2190 rejects any and all attempts to go lower, and then yields to a new leg up in the ongoing Great Bull market!
ASSAULTING NEW LOWS?
These weekly updates have consistently warned investors that the rally off the June 17th low at S&P-500 3636 to the high on August 16th at 4325 was a countertrend rally in bear market of an unknown but likely very large “degree”, which served to relieve oversold conditions while causing investor sentiment to turn bullish again. That is the insidious nature of bear markets, which causes investors to remain invested, when an aggressive strategy of wealth preservation and risk management would be more prudent. However, having recognized the bear market early on, we have been systematically reducing our equity exposure just in time to allow clients to benefit from sharply rising interest rates by making the inverted yield curve work in our client’s favor, while safely sitting out the bear market with a generous percentage of our asset allocation in United States treasury bills and notes, which are often described as the safest of investments.
The bear decline has now breached double Fibonacci support at S&P-500 3800 again and closed marginally above the June 17th low for the bear market to date at S&P-500 3636. Given the lack of positive divergences in our supply and demand indicators, an assault on the lows to date in the popular stock indexes is likely but may have to wait for the development of another countertrend rally to relieve oversold conditions again. However, investors should be warned that in bear markets oversold conditions can remain oversold as the price continues to decline, sometimes in an acceleration. A breach of the low to date for the bear market at S&P-500 3636 would likely raise the odds of an acceleration lower as investors collectively recognize the rally was a bear trap and their wealth is increasingly at peril.
Investors should prepare for increasing volatility with violent price movements, both up and down while the VIX likely moves incrementally toward 40, a number likely to be bested by a significant margin before this potentially large “degree” bear market has run its course and yields to a new emerging bull market. The historic excesses registered in a host of financial metrics as the price approached the January 5th all-time high at S&P-500 4818 will likely not be balanced by just a run of the mill bear market, the symmetry of the nature of corresponding action and reaction suggests that the scale, magnitude or “degree” of the correction of the historic excesses would likely need to be proportioned with the preceding excesses, which suggests that this bear may likely still be in its early innings.
TATY — A REPRESENTATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS
TATY is shown above in yellow and finished the week marginally below the caution zone surrounding the 115-125 level at an oversold 113. TATY has done a truly wonderful job of identifying the all-time high at S&P-500 4818 and both rebound, or countertrend rallies as they were happening. TATY is oversold enough to suggest another bounce may develop before the low to date, and strong support at S&P-500 3636 is breached on a closing basis. A close below 3636 would increase the odds of an acceleration lower in the price before perhaps another pause as the price approaches double Fibonacci support surrounding the S&P-500 3200 level. However, as the bear continues to develop, investors will notice that countertrend rallies will likely become less effective at restraining the tendency of declines in the price to accelerate lower.
If the past is prologue, then investors looking for a tradable bottom should watch carefully in the weeks to come for a developing positive divergence in TATY like the one which began to develop in April as the price continued to decline into the June 17th bottom even as TATY was rallying sharply off its April bottom (rising dashed green line). Not every top or bottom in the price is preceded by a positive or negative divergence in TATY, but it happens often enough to be on the look out for those developing divergences. There is not yet any signs of a positive divergence in TATY, which suggests a continuing decline in the price is likely.
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. After confirming the most recent TATY “BIG CHILL” warning, SAMMY has declined in step with the price and has broken the dashed positive green divergence line and has now descended below its long term dashed yellow horizontal support line. This implies that until there is a rally attempt in SAMMY the path of least resistance in the price is likely lower.
STERLING — A REPRESENTATIVE OF A NEW FAMILY OF SHORT TO INTERMEDIATE TERM TRADING INDICATORS
STERLING is shown above in upper panel with the S&P-500 eMini in the lower panel. STERLING has not generated many positive nor negative divergences lately, so for the time being it grades out as neutral.
Screenshots-998, 999 (both above), 1000 and 1001 (Both Below) have all been shown several times previously and are updated here for your additional information and perspective through Friday’s close. Screen-shot-1000 and 1001 show Fibonacci grids projected off the March 23, 2020 low at S&P-500 2190 and the March 9, 2009 low at the biblical number of 666. If S&P-500 2190 is not breached on a closing basis, then we will continue to treat the bear market as a correction of the most recent leg up in an ongoing bull market, which began at S&P-500 2190 and peaked out at the all-time high at 4818. When this correction ends, then we would expect the resumption of the ongoing Great Bull market.
However, given the historic excesses existing in numerous financial metrics as the price approached the January 5th all-time high at S&P-500 4818, then a case can be made that a bear market of an unknown but likely very large “degree” began on January 5th and may likely breach the March 23, 2020 low at S&P-500 2190 at some point, which would confirm the bear market was of a very large “degree” and represent a clear, present and imminent danger to accumulated client and investor wealth. A breach of S&P-500 2190 would then cause the Fibonacci projections off the March 9, 2009 low at 666 to come into play as well as the highlighted horizontal support zones on the chart created by market action during the long bull run to the all-time high at S&P-500 4818. A close below S&P-500 2190 would likely be a harbinger of economic, social, political, and geopolitical chaos not seen for generations both at home and abroad given the potential for the massive wealth destruction implied.
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