THE BOTTOM LINE
The slow-moving bear market continues to grind its way lower having closed Friday at virtually low tick for the day, week, month, quarter, and for the first three quarters of the year, providing a growing body of evidence it is likely still early days for this emerging bear market. There will be powerful counter trend rallies along the way, but assaults on chart support created by the price during its long bull run to the all-time high at S&P-500 4818 and Fibonacci projected support at S&P-500 3504 and 3194 are expected, as the emerging bear market continues to develop and grow stronger.
The slow moving and persistently grinding lower bear market finished the quarter on Friday at virtually low tick for the day, week, month, quarter and for the first three quarters of 2022. Readers of these weekly updates should have not been surprised, because for weeks during the euphoric run up to the S&P-500 all-time high at 4818 we were warning that multiple financial metrics were not just registering extreme reading, but historic extremes never experienced by investors, which would likely resolve into a bear market perhaps also eventually registering metrics in the opposite extreme to balance those of the previous bull.
The bear market in stocks, bonds, many commodities, global currencies against the dollar, and with real estate looking poised to join the other bears, the table seems set for something other than a quick and nasty run of the mill correction/bear market. Multiple metrics and supply and demand indicators are suggesting that it is still likely early days for the emerging bear, which is why we have systematically been moving clients into T-bills and T-notes making the inverted yield curve work not only to preserve your wealth, but also get a return on it approaching four percent guaranteed by the United States Treasury.
The emerging bear market will likely create opportunities for tactical trades, which we will take advantage of to boost our performance against the popular stock indexes, which will likely be under selling pressure for weeks, if not months to come as this financial storm likely continues to gather strength, as it uncovers the built up weaknesses in the global financial system previously hidden from view as global central bankers spiked the system with ever more copious amounts of liquidity looking for a home. A bear market at a likely very large degree will provide the stress necessary to ferret out the built-up weaknesses in the global financial system, and political and financial events in England and Russia may lead the way sooner rather than later, but no doubt there will likely be other surprises and shocks to the global financial system not as obvious.
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 ended the week at 114 marginally below the caution zone surrounding the 115-125 level and remains oversold, but less oversold than in April as the first leg down off the S&P-500 4818 all-time high was underway. This implies that the Friday new low for the bear market has been achieved on less selling pressure than the first leg down. We shall be monitoring this closely as it has multiple implications for gathering strength, or weakness of this leg down in the emerging bear market.
TATY has done a superb job of identifying the all-time high at S&P-500 4818 and both rebound tops for the bear market to date, which is its evolutionary franchise history dating to the late 1980s and/or early 1990s. TATY’s ability to identify tops in bear market rallies will be severely tested given our expectation that investors are experiencing a bear market of a likely very large, but unknown degree. If TATY’s record of accuracy continues, then it will facilitate trading intermediate term bear rallies with risk levels within our risk management tolerance. Currently there is no positive divergence developing in TATY nor in TATY’s Premium/Discount indicator in the lower panel, although both remain oversold.
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 peaking out at its long term dashed red resistance line, SAMMY has now declined below its dashed yellow long term support line confirming the signals register by TATY along the way. TATY and SAMMY have now reached levels from which investors may expect positive divergencies to develop. However, in strong bear markets indicators can get oversold and remain oversold, a condition more often associated with positive divergencies in strong bull trends, so for now we wait for evidence that TATY and SAMMY are likely beginning to part ways with the still declining price.
STERLING — A REPRESENTATIVE PROTOTYPE OF A NEW FAMILY OF SHORT TO INTERMEDIATE TERM TRADING INDICATORS UNDERGOING TESTING
STERLING is shown above in the top panel with the S&P-500 eMini futures contract in the lower panel. STERLING is often useful at locating bottoms by first descending below the lower Bollinger Band and then positively diverging with the still declining price over often 3-5 days, and sometimes longer. The reverse is often true at tops, although tops are always magnitudes of order more difficult to identify than bottoms at any degree, and of course neither are ever easy to identify in real time. Currently, STERLING is beginning to develop a positive divergence with the still slowly grinding lower price. The longer this divergence exists, then the greater the prospect of a relief rally.
Screenshots-1004, 1005 (both above), 1006 and 1007 (both below) have all been shown before and are shown here updated through Friday’s close. Screenshot-1004 is the S&P-500 eMini futures daily chart showing the price being rejected at the dashed red horizontal resistance line, which we published in advance of the price reaching that resistance level. Screenshot-1005 is the cash S&P-500 being rejected at the 50% yellow Fibonacci resistance line and the subsequent decline breaching the previous June 17th low at S&P-500 3636 this past week. Investors were warned in these weekly updates that the return of optimism as the bear rally approached the Fibonacci 4227 resistance was likely a bear trap, and now we know it was. Bear markets are insidious in that their mission is to deceive to survive and continue to destroy wealth.
Screenshots-1006 and 1007 are weekly and quarterly charts of the cash S&P-500 with two Fibonacci projections using the same colors for the percentage retracement levels represented: orange for 25%, red for 38%, yellow for 50% and green for 62%. There are also rectangles representing support zones created by price action during the long bull run to the all-time high at S&P-500 4818, which will now act as support during the current bear market. The Fibonacci projections are to a common high at S&P-500 4818 but emanating from two different lows, namely the March 9, 2009 low at 666 and the March 23, 2020 low at 2190. So far, Fibonacci support at 3800 and the important June 17th low at S&P-500 3636 have been breached. Next Fibonacci support is at 3504 and then double Fibonacci support at approximately 3200. Investors should be advised that Fibonacci support may tend to restrain the bear trend, but is not required; and as the bear matures support zones tend to become less effective at restraining declines.
Please take a look at Screenshot-1005 again, and the Screenshot-1006 showing the Fibonacci projection off the March 23, 2020 low at S&P-500 2190. If 2190 is breached in like manner as the Fibonacci projection off the S&P-500 3636 low in Screenshot-1005, then the projections on the quarterly chart in Screenshot-1007 will become more operative, and confirm our suspicion that investors are experiencing a perhaps once in a lifetime financial debacle with severe implications for the economy, preservation of wealth, social unrest, political chaos, and geopolitics.
Hopefully this bear market is only correcting the last leg up in an ongoing bull market, which began at the March 23, 2020 low at S&P-500 2190, but like in Sir Isaac Newton’s laws of physics where every action is matched by an equal but opposite reaction, the historic financial excesses at the S&P-500 4818 all-time high imply a bear market in like order of magnitude may have a good probability of emerging. In any case, our clients now have a potential road map to follow, which has a good probability of identifying the risks to accumulated wealth along the way to an eventual bear market bottom, and perhaps a buying opportunity of a lifetime, if one has the courage to buy into the likely chaos and panic implied at such an historic bottom.