Easter in a Changing World
Easter in a Changing World

Easter in a Changing World


Denial is not a river in Egypt, but it is a very human response to a change in the status quo, particularly if the change is in a negative direction as is the current case regarding the prospects for the stock market in an environment of sharply rising inflation and attendant interest rates, and the largest land war in Europe since the end of WWII. The war in Ukraine has multiple ways to grow more dangerous than the catastrophe it already is, driven by a murderous dictator aspiring to become a new Czar of a restored former Empire. Dreams die hard and Mr. Putin’s may need cooperation and resolve among the NATO allies not seen since WWII to extinguish, if that is even possible short of Mr. Putin’s demise, either by those around him or by miscalculation. In the interim S&P-500 4388 and 4100 loom large in the potential evolution of the current correction into a potentially huge degree bear market.

Easter in a Changing World

These weekly updates have been consistently warning investors to expect powerful moves, both up and down, in the price in the stock market, which is behavior consistent with high levels of volatility during bear markets.

We have also been warning that a 39 year down trend in interest rates, which eventually resulted in rates going negative both in the United States and in other countries, had ended and rates were likely to move higher sharply, and they have. The mortgage rate for example was around 2.75 to 3.00% in early 2021, is now quoted at 5.00% and above, which has resulted in a 60% decline in applications for mortgage refinancing. The most recently completed interest rate cycle from bottom to bottom was 78 years round trip, 39 years up and 39 years down, so the odds are significant that rates are now going to march higher, in fits and jerks, for as far as the eye can see, which obviously has the potential to be a game changing development not just short term, but potentially for a couple of generations to come.

The Fed’s “transient inflation” is likely anything, but transient given the aspirations of a murderous dictator to become a Czar by invading his neighbors and threatening the use of nuclear weapons in the process. A threat not to be taken lightly once a thug has tasted the elixir of successful conquests in the former Soviet Georgia and Chechenia, where the Capitol cities were leveled to the ground. And did I mention that having failed in his initial attempt at decapitating the Ukrainian government, he has now turned to “the Butcher of Syria” to do his bidding in Ukraine, not a series of events likely to result in “transient inflation”.

The stock market has responded to the recent news by the S&P-500 peaking on January 4-5th at 4818 and settling into a range from 4100 to 4818 punctuated by powerful, and often violent rallies as the die-hard dip buyers periodically rush in to scoop us perceived bargains, which in the long context of history are anything but bargains, especially in a rising interest rate environment. During the past week the wide trading range from 4100 to 4818 tightened to about 100 S&P-500 points as the price slowly moved between 4500 and marginally below the important support level at 4388 but failed to close below it. A close below S&P-500 4388 would imply an assault on S&P-500 4100, which if breached on a closing basis would significantly increase the odds of an acceleration lower, and possibly a 90% downside day(s), the current missing evidence of the ongoing evolution from correction into a bear market.



TATY is shown above with the S&P-500 overlaid in red and blue candle chart format. TATY finished the week at a weak 130 without any improvement in the negative divergences in place since August of 2021, even though the recovery rally off the February 24th low has touched a marginal new high. A TATY surge to above the magenta negative divergence line would imply an assault on new all-time highs. However, after three “Big Chill” warnings in a row the power required for such a surge would seem to be unavailable given that the multiple powerful rallies to date, compliments of the still convicted dip buyers, have all faded quickly below the negative magenta down sloping resistance line. The larger question is how much longer will the dip buyers remain active given the multiple failures to reward their dip buying risks?

How do 90% downside days develop? When the bear eventually breaks the backs of the dip buyers, then they become rally sellers, which in turn slowly develops into the potential for panic selling. A breach of S&P-500 4100 on a closing basis would be some hard evidence the dip buyers, in like manner as the stocks continuing to roll over into their own bear markets, were in increasing numbers and shares represented transitioning into rally sellers.



SAMMY is shown above in yellow with the S&P-500 overlaid in red and blue candle chart format and is essentially confirming TATY with a persistent negative divergence (down sloping dashed magenta line) in the face of a recovery rally. STERLING (shown below) is neutral now having failed to paint out any divergences, positive nor negative. STERLING is no doubt responding to the very tight 100-point S&P-500 range of the last week, which is common prior to a long holiday weekend. These tools tend to be very accurate, so for now they are signaling patience is required before taking any further defensive action.


Please stay safe!


DISCLAIMER : Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Optimist Capital LLC.