THE BOTTOM LINE
This past week’s price behavior included powerful rallies and declines about which we have warned investors many times, as this is typical bear market behavior. However, the weight of the evidence still favors an ongoing bear market in effect, which implies the current rally is likely to fail short of new all-time highs.
If the bear market has already ended without the classic evidence of exhausted sellers followed by measurable and powerful resurging demand, then our proprietary supply and demand indicators combined with long standing Lowry Research analysis will likely give us favorable entry points to join the new emerging bull market. For example, in the event of a new emerging equity bull market, TATY will likely begin to paint out oscillating lows in, or near the red zone and tops near the blue zone surrounding the 160 level. However, the odds on this happening are not favorable, as the probabilities are very favorable toward a continuing bear market, which has yet to reach its “point of recognition”, when traditionally prices accelerate lower in panic fashion.
Investors should prepare for continuing volatility and perhaps an expiration of the current countertrend rally in the days, perhaps weeks to come. Obviously, the looming election will remain a source of uncertainty for the stock market, around which already high volatility may increase.
EXPIRATION OF ANOTHER BEAR MARKET RALLY
The bear market continues to do what it is supposed to do, which is to trick investors into keeping their assets at risks, when those risks are rising as opposed to diminishing.
Bull stock markets are often characterized by tiny incremental gains and losses stretching out over extended periods of time, which net out to gains, which are vulnerable to being quickly reduced, but not completely eliminated by occasional corrections of the primary bull trend. On the contrary, bear markets are often characterized by violent and swift price movements both up and down, which net out to the steady erosion of the wealth accumulated during the previous bull market. The powerful, violent, and often swift countertrend rallies during bear market provide the incentive (hope) to keep investors exposed to the risks implied during equity bear markets, when prudence would require rigorously disciplined risk management, until objective evidence of exhausted sellers followed by resurging demand appears, which would signal the emergence of a new primary bull trend.
In the current case, objective and measurable evidence of exhausted sellers and resurging demand has yet to arrive, causing the odds to still favor an ongoing bear market.
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 out of the caution zone surrounding the 115-125 level at 130, which exceeded its down sloping magenta resistance line. This implies the countertrend rally may have enough residual strength to assault the red zone surrounding the 140 level. A failure at, or near the red zone would trigger a new “BIG CHILL” warning, the past three of which called the January 5th all-time S&P-500 high at 4818, and the last two countertrend rally highs as they were happening. TATY has a long history of identifying significant bull market tops and countertrend rally tops during bear markets. So, the drill going forward will be to monitor TATY carefully for exhaustion in, or near the red zone surrounding the 140 level, which would imply the exhaustion of the current countertrend rally.
The formation of another lower high and the return of the bear trend would likely cause substantial frustration among the bulls, which then may become a catalyst for an acceleration lower in the price, as investors collectively reach the critical “point of recognition” common to all bear markets, where previous dip buyers become sellers into weakness.
SAMMY — A REPRESENTATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS
SAMMY is shown above with the S&P-500 eMini futures contract shown in green and red candle chart format overlaid. After moving sideways before the October 26th bottom, SAMMY has sprinted higher and finished the week right on its down sloping resistance line and marginally below its long-term red dashed horizontal resistance line. This implies the torrid rally of the last few days is likely to become more labored, perhaps as TATY approaches the red zone surrounding the 140 level. If TATY begins to struggle nearing the red zone, then I’d like to see some negative divergence begin to develop in SAMMY as confirmation.
STERLING — A REPRESENTATIVE OF A FAMILY OF SHORT TO INTERMEDIATE TERM TRADING INDICATORS UNDERGOING TESTING
After positively diverging just prior to the rally taking off, STERLING has rallied powerfully and so far, has not developed any negative divergence after easily breaching its down sloping magenta dashed resistance line. Signs that TATY may fail in, or near the red zone confirmed by negative divergences in SAMMY and STERLING would raise the probabilities that TATY is likely in the process of locating the termination of another bear market countertrend rally. This process could happen quickly or linger until after the election.
Screenshots-1029 and 1030 (both above) are of the S&P-500 eMini futures contract and cash index, respectively. The first shows the S&P-500 eMini futures moving above chart resistance this past week, and Screenshot-1030 shows the cash index moving above its down sloping dashed magenta resistance line, which implies the rally is not done and may linger for days, or weeks.
Screenshots-1031 (above) and 1032 (below) have been shown numerous times before and have been updated her for your additional information and perspective. Both charts use a common ending point, namely the S&P-500 all-time high at 4818 for two Fibonacci projections with two different beginning points, the March 9, 2009 low at 666 and the March 23, 2020 low at 2190 with common colors for the retracement levels: orange 25%, red 38%, yellow 50% and green 62%. There are also horizontal rectangles showing support zones created by the price during its long rally into the all-time high at 4818. If S&P-500 2190 is not breached on a closing basis, then we shall treat the current bear market as a correction of the previous leg up in an ongoing bull market, which will be followed by new all-time highs. This would likely be confirmed by TATY beginning to make oscillating bottoms in, or near the red zone surrounding the 140 level and tops near the blue zone surrounding the 160 level.
However, a breach of S&P-500 2190 would signal that a bear market of a very large, but unknown “degree” has been in effect ever since the January 5th all-time high, which likely has much more to go with very negative implications for social, economic, political, and geopolitical distress and chaos with severe implied consequences not experienced in generations.