“To date this new indicator has surpassed all my expectations, as it continues to paint out usable divergences, both positive and negative, in advance of rising and declining short-term changes in trend.
Currently TATY and SAMMY are basically neutral, but STERLING is suggesting that investors should not be surprised if a bounce attempts to develop next week. This is suggested by the positive divergence in STERLING (rising dashed green line) compared to last week’s continuing decline (down sloping dashed magenta line). If a rally attempt does come to pass, then the question will be is a seasonal price decline over or is the stock market just due a bounce to relieve oversold conditions in an ongoing decline, which has the potential to accelerate. It is an important question, but for the moment advantage bears as the pressure is now on the bulls to prove they have the strength to take the price higher.”
As has been stated many times, the stock market is a master of disguise and deceit. After firmly establishing a series of lower lows and lower highs, which is the classic definition of a downtrend, the stock market roared back this past week with a powerful rally, which of course still left the series of lower lows and lower highs in place just to keep the beaten-up bears in suspense, but for the moment the bulls have taken charge of the market in dramatic fashion. The question now is can they follow on a powerful start with a meaningful continuation. The answer to that question may play out into the holidays.
The bulls were elated this past week by a sharp bounce in the bond market and a clean sweep of economic news pointing to evidence the Fed likely has cause to bring an end to the rate rising cycle, nirvana Goldilocks arrives just in time for the holidays! So, the bottom line for this section is that the bears have correctly called, for the moment, a seasonal decline, which the bulls believe is over including the potential end of the Fed raising rates, a signal for the bulls to pile back into equities. Yep, the stock market chose Halloween as the moment to reprise its role as master of disguise and deceit, deceit because both the bulls and the bears can make a case, but both cannot be right.
So, who is right and how will we know? If we are dealing with a large “degree” bear market as we suspect, then we may not have confirmation until well into the holidays, or perhaps even into the new year given the strength of the lift off the Halloween low.
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 a strong 152 well above the red zone surrounding the 140 level.
This kind of strength is very good news for the bulls and if a seasonal low is behind us, then the next few months (roughly Halloween to Easter) are some of the seasonal best historically on the calendar for stocks. If the seasonal low is in, then the power being displayed by TATY, and other supply and demand indicators, suggests the price may attempt an assault on new all-time highs. However, if TATY begins to negatively diverge with the rising price, then the bears may wrestle back control of the market. Such an event would take time to play out since TATY is a weekly generated indicator.
Please notice an easy to overlook nuance, which is found in the Premium/Discount indicator in the lower panel, which never descended below the deep discount level at minus eight, nor TATY into the caution zone surrounding the 115-125 level, to indicate some capitulation on the part of the bulls. This lack of an objective purge of would-be sellers may eventually provide some drag on any further rally due to residual sellers still being active in the system. Of course, this just adds to the potential for investors to be deceived later that the rally has legs when it is actually burdened with would-be sellers. This scenario is so rare that it may be easily overlooked, but it does contribute to the market’s ability to be a master of disguise displaying what appears to be a powerful rally albeit a rally laced with anxious would-be sellers, now that is deceit!
SAMMY — A REPRESENTATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS
SAMMY is shown in yellow above with the S&P-500 eMini futures contract overlaid in red and green candle chart format.
SAMMY could not manage to violate its red dashed horizontal red support line and has now rallied sharply back to a historically high level, which is encouraging for the bulls. The failure of the bears to pressure SAMMY into lower ranges suggests that residual strength remained in the balance. In like manner as TATY, SAMMY is a weekly generated supply and demand indicator, so any negative divergence appearing in SAMMY may take some time to develop, which suggests the price rally is likely to attempt to linger.
STERLING — A REPRESENTATIVE OF A NEW FAMILY OF SHORT TO INTERMEDIATE TERM TRADING INDICATORS
STERLING is shown above in the top panel with the S&P-500 eMini futures contract shown in the lower panel.
STERLING gave a superb warning that the stock market was poised to rally at the end of trading last Friday, shown as a green dashed positive divergence in the upper panel indicator chart compared to the then declining price shown by a magenta dashed negative divergence in the lower price chart. STERLING cannot forecast strength or weakness of any subsequent move, but its accuracy rate since inception of divergence leading to change in direction is nothing short of phenomenal, inclusive of last week’s “heads up” for a potential rally. Currently, it would likely take several days to build out any meaningful negative divergence, as STERLING is still accelerating higher on momentum.
Screenshots-1364 (daily, above) and 1365 (weekly, below) are the S&P-500 cash index showing the price back at the horizontal dashed red support/resistance line, which keeps coming into play at the approximately 4320 level. I suspect the torrid pace of last week’s rally may begin to slow down near this zone. However, given the profile of the power behind last week’s rally, then investors should expect that this rally is not likely to end spontaneously or quickly.
Screenshots-1361, 1362 and 1363 (all 3 below) have all been shown many times previously and are updated here for your additional information and perspective. Please notice the decline reversed near the orange Fibonacci projection on Screenshot-1361. This zone will remain support until broken. If the bear trend resumes and begins to take out this level and other support zones, then the implications of the projections shown on Screenshots-1361-2-3 will be discussed in copious detail.
THE BOTTOM LINE
After painting out a series of lower lows and lower highs, the stock market in its role of master of disguise and deceit put on a powerful rally this past week ending just short of violating the series of lower lows and lower highs, which serves to keep the bears in suspense and the bulls lacking confirmation that the downtrend has been decisively broken.
STERLING alerted investors that a rally may develop, and a powerful rally did, so now we wait to see if the bulls will have sufficient follow-on strength to attempt an assault on new all-time highs, or if the rally is just a tease to deceive investors in an ongoing bear market. The resolution of the bull or bear conundrum may linger well into the holidays, or perhaps even into the new year given the strength displayed by the post Halloween rally lift off.
