THE BOTTOM LINE
TATY and STERLING are positioned in ways, which suggests that the rebounding price rally may linger. SAMMY is signaling that the underlying trouble previously signaled by the long negative divergence dating back to last July may still be at work, because of the muted recovery to date in SAMMY. Should SAMMY fail to begin to improve dramatically soon followed by TATY completing a “BIG CHILL” warning, then the bear case may improve its odds of success. However, even if this scenario comes to pass it may take days, or weeks for the puzzle pieces to fall into place. Alternately, in the absence of a “BIG CHILL” warning being completed, then investors may be rewarded by a renewed assault on all-time highs in the price.
EMERGING SIGNS OF STRENGTH BUT IS IT ENOUGH?
Our last several updates have mentioned that the bears posit that the great bull market ended in February and the following plunge and recovery rally are all part of the early innings of a great new bear market. The bears may be right but at the moment they are getting mugged by a relentless rally. So, this begs the question was the post February plunge so intense that it hammered into place a bottom so substantial that it can support a rally back to new all-time highs, or has the bull fever been broken and the bears are now finally in charge.
We are not in the financial fortune telling business and we have no tools, which can accurately peer into the future. However, we do have cohorts of supply and demand indicators, which have been time tested in the crucible of the stock market and these indicators are wonderful risk management tools. So, let us review the objective hard evidence being generated by the stock market itself and see what the market has to say about its current condition.
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 has recovered back to the 137 level just below the red zone, the key level it must overcome to signal the rally has any chance of touching new all-time highs. A stalling out in, or near the red zone surrounding the 140 level would complete a “BIG CHILL” warning, which would likely confirm the February all-time high as the end of a leg up in the great bull market, or perhaps the end of the great bull market dating to historic lows of 2007-2009, 2000-2003, October 1987, August 1982, 1973-4 or perhaps even earlier according to some analysts. A correction including any of these lows as starting points would be an extremely pain filled experience for investors, and devastating for older investors, which may need their funds near term.
For the time being TATY, and the Premium/Discount indicator in the lower panel are signaling continuing recovery in the indicators and by implication the price. This is subject to change in the days and weeks ahead but for now the implication is the price rally is gradually gathering strength and may linger for days or weeks. A study I did once upon a time revealed that countertrend rallies during big bear markets often took five to thirteen weeks to complete, and next week will be the fifth week for the current rebound.
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 green and red candle chart format. SAMMY is lagging TATY in its recovery after negatively diverging with the rallying price for months dating back to last July. This huge negative and lengthy divergence was literally shouting that something was wrong as the price was driving on and on toward the February all-time high. SAMMY then plunged ahead of the price going round trip from the July all-time high in the indicator to deeply oversold well below the horizontal dashed orange oversold line. And, now SAMMY is not recovering briskly and remains well below overhead resistance in the form of the down sloping dashed red and magenta lines, and remarkably remains in oversold territory below the horizontal dashed orange oversold line. This is encouraging for the bears, not so much for the bulls.
STERLING —- A REPRESENTATIVE OF A FAMILY OF SHORT TO INTERMEDIATE TERM TRADING INDICATORS
STERLING is shown abovein the upper panel with the S&P-500 eMini futures contract in the lower panel. There are no divergences, positive nor negative, in place this week as STERLING is leading the price higher confirming the rally. The bears continue to expect an accelerating immediate crash in the price; however, STERLING is suggesting that is unlikely until some mature negative divergences build out, and that will require some time.
