THE BOTTOM LINE
The November 5th update warned that a rally above S&P-500 3911.79 would likely signal that the bear market rally was turning more complex, which would take weeks longer to complete, and that is exactly what has happened. The bear rally is likely to linger, because only STERLING is just now beginning to develop a negative divergence, which is still very early in its construction.
However, TATY appears to have moved into position to flash another “BIG CHILL” warning in the days, or weeks ahead. A new “BIG CHILL” warning confirmed by a cohort of other supply and demand indicators would likely be a harbinger of the return of the bear trend. The arrival of such an event would be contra to the normally positive seasonal from Halloween to Easter, which has provided almost all the gains in the stock market over the last one hundred plus years but is also testament to the insidious nature of bear markets in their role as “masters of disguise”.
CONTRA-SEASONAL?
Studies have shown that almost all the gains in the stock market over the last one hundred plus years have been made during the positive seasonal trend from Halloween to Easter. Many investors position their portfolios based on this historical fact. However, this week’s update will explore why the very reliable seasonal trend may not happen this time round, which would no doubt catch investors poorly positioned vis-à-vis their implied risks, if instead the bear market rally is nearing completion and the bear market is on the cusp of resuming, perhaps with a vengeance.
Here is a quote from the November 5th weekly update: “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”. So, here we are on the cusp of December and the counter-trend corrective rally has turned complex, overlapping, and is slowly chewing up the remaining days of 2022. And, yet there are no significant negative divergences although STERLING appears to have begun construction on a very minor three-day negative divergence, which appears to need additional development to become important to the overall analysis. It is not unusual for complex corrections to frustrate analysts, and this one appears to be lulling investors into complacency, even as it twists the bears slowly in the wind playing out the market’s role as a “master of disguise”.
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 139 only one-point shy of the red zone surrounding the 140 level.
Should TATY fail in, or near the red zone, then having already visited the caution zone for days, a new “BIG CHILL” warning would be triggered. Another “BIG CHILL” warning would be the fourth this year and may become a harbinger that the stock market is beginning to resume the previous bear trend in like manner of the three previous this year, which caught the January 5th all-time high, and the expiration of the two-bear market rebound rallies as they were happening.
Given this indicator’s long and impressive history of identifying significant tops, then the issuance of a new BIG CHILL warning may likely be followed by a resumption of the bear market with the potential to turn complacency on the part of investors into an urgency to reduce their risks.
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 in red and green candle chart format. SAMMY has generated enough strength to rally above the horizontal dashed red long term resistance line, which implies this indicator is very overbought. Overbought in the history of this tactical indicator often gives way to a decline to relieve the overbought conditions. SAMMY is in weekly format, so it may take some time before the overbought condition begins to reverse, and any developing negative divergence is more likely to develop in STERLING first.
STERLING — A REPRESENTATIVE OF A NEW FAMILY OF SHORT TO INTERMEDIATE TERM TRADING INDICATORS
STERLING is shown above in the upper panel with the S&P-500 eMini futures contract in the lower panel in candle chart format. STERLING is virtually alone among dozens of supply and demand indicators in hinting at a negative divergence early in construction. This indicator normally takes a minimum of three to five days to develop a meaningful divergence, positive or negative. However, it is not unusual for STERLING to provide an early warning relative to other indicators, which then tend to confirm any budding divergence under construction in STERLING, hence part of STERLING’s value. If the price continues to edge higher and STERLING continues to weaken, then a cohort of other reliable supply and demand indicators will likely begin to form negative divergences.
Screenshots-1089, 1090 (both above) and 1091 (below) have all been shown multiple times before, and are updated here through Friday’s close for your additional information and perspective. Screenshot-1089 shows two levels of potential resistance for the counter-trend rally, but the bear rally is not required to touch either level. However, with only STERLING showing any attempt to form a negative divergence the price may continue to make progress toward those next two levels of resistance.
If the rally expires before the end of the year, or very early next year, then the probable path of the resumed bear trend is shown in Screenshot-1091 with the crudely drawn white dashed lines ending just above the critical S&P-500 2190 level, the March 23, 2020 low. A violation of this level on a closing basis would be an extremely negative development with very serious implications globally, because it would tend to confirm the notion of a very large “degree” bear market being in effect.
HAPPY HOLIDAYS!
