THE BOTTOM LINE
Lowry Research measurements of Buying Power and Selling Pressure remain deadlocked in a stalemate. The price remains range bound with occasional new all-time highs. Investors should expect rising volatility as the calendar turns toward the seasonally weak months of September and October.
Until there is a significant change in Lowry Research measurements of supply and demand, or in our own measurements of same, then investors should expect the recent wobble higher in the price to continue to be followed by sharp declines. However, the onset of a major top, and potential subsequent bear market would appear to be delayed until both Lowry Research, and our own indicators turn more negative. The growing numbers of bears, and their more strident warnings of imminent peril to equity investors may be right, but lacking objective market generated evidence of the bearish variety, then all-out defensive tactics in client portfolios would appear to be premature, subject to change of course.
KONDRATIEV WAVE?
Nikolai Kondratiev was an acclaimed Russian economist, who postulated a long economic cycle lasting approximately 50-70 years. For simplicity sake I’ll refer to it here as a boom/bust cycle, which is very unfair to the body of Mr. Kondratiev’s academic work, which you can Google for more details. Implying the Soviet economy was not immune to the bust part of the cycle angered Joseph Stalin, which then had Mr. Kondratiev executed.
Currently the Kondratiev Wave (K-Wave) theory proponents have begun to attempt to make some money by selling subscriptions to various publications on the internet putting forward the idea of the imminent onset of a Kondratiev Wave economic winter. On the internet bad news, and conspiracy theories seem to be the way to gather “clicks”, so I have not been surprised to have received multiple promos recently from outfits promoting the K-Wave economic winter theory, plus long established bears pressing their own negative economic outlook ever more stridently.
The bears may turn out to be right, and near total economic collapse may be just around the corner, but so far there is scant evidence in the Lowry Research measures of supply and demand, or our own measures of same, which would tend to confirm the extreme bearish case. And, interestingly enough, if one does a bit of research in this post-truth world of ours, one should not be surprised to discover that very sophisticated media mass marketers are selling one segment of the population a “doom and gloom” bear case, and at the same time another segment an extremely bullish outlook!
These weekly updates strive to confront clients, and research customers, with measurable market generated facts, which are then compared to the history of those measurements down through the years. Like the seasons of the year determine the planting, growing and harvesting of crops, some market metrics are associated with periods of lower risks favorable to being significantly exposed to equities, and others have a history of determining market “seasons”, when risks to owning equities has become an issue for risk adverse investors, which may compel us as fiduciaries to adjust our asset allocation in line with rising risk levels.
We leave forecasting the future to those, which think they can accomplish that most difficult of challenges. For example, depending on the article you may land on in Googling Mr. Kondratiev, you will find that there has been either four, or six completed iterations of his K-Wave spanning a very wide and flexible time range. So, first off there is no statistically valid sample with only six iterations, and the commencement of the wipe out leg down has supposed to have varied by a span of about twenty years during the four, or is it six completed cycles! The K-Wave makes for some good cocktail party conversation, but you may want to avoid using it as an asset allocation tool.
TATY — A REPRESENTATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS
TATY is shown above in Snapshot-289 in yellow with the S&P-500 overlaid in red and blue weekly candle chart format. TATY finished the week at 144, and still showing a new negative divergence under construction to the price. Should the price continue to “wobble” higher, as a recent update observed it may, touching new all-time highs in the process without confirmation by new highs in TATY, then the stock market will likely remain vulnerable to rising volatility.
In the absence of a new “Big Chill” warning, or TATY beginning to make oscillating bottoms near the red zone and tops near the blue zone surrounding the 160 level, which would be a signal of increasing strength, then investors should expect a potentially bumpy ride higher interspersed with spontaneous and violent declines, because the Lowry Research measurements of Selling Pressure and Buying Power remain deadlocked with neither demonstrating the ability to separate itself decisively from the other, here on the cusp of the most negative seasonality on the stock market calendar.
SAMMY — A REPRESENTATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS
SAMMY is shown above in Screenshot-265 in yellow with the S&P-500 overlaid in red and blue weekly candle chart format. The negative divergences detailed previously in these weekly updates remain, and continue to develop.
The price touched a new all-time high on Monday, and then immediately began to sell off into a sharp, but short decline. The bears see this decline as the beginning of a plunge, which is likely to accelerate into the seasonally weak months of September and October. They may be right, but it is important to observe that the decline, like all recent declines, soon found aggressive bidders, and by the end of the week all the primary Fibonacci rebound target levels had been bested. Often a rebound rally to above the 62% Fibonacci retracement level is a signal that a recovery rally may return to new highs. The jury is still out on this recovery rally, but the lack of a “Big Chill” warning suggests that a series of “wobbling” rallies touching new all-time highs remains a viable potential outcome.
“Big Chill” warnings tend to break the psychology of the bull fever, while TATY bottoms forming near the red zone, and tops near the blue zone beginning at the 160 level tend to reinforce the bull fever, and currently neither have been triggered. In the absence of either, and given the stalemate in the Lowry Research Buying Power and Selling Pressure, investors should not be surprised if the price makes marginal new all-time highs, which may likely be followed by sharp sell offs. A plunge by TATY into the caution zone surrounding the 115-125 level, and a plunge by SAMMY below the horizontal dashed yellow support line shown on Screenshot-265, both on a closing basis, would likely be a warning that the often negative seasonality of September and October was beginning to manifest itself, perhaps violently.
Screenshot-266 (above) is the S&P-500 cash index through Friday’s close, Screenshot-268 (Below) is the S&P-500 eMini futures contract showing the new all-time high early in the week, a brief violation of support in mid-week, and the recovery rally late in the week. Screenshot-267 (Below) is the QQQ Technology ETF through Friday’s close. All are displaying overlapping movements on low volume. Unless the support lines shown on the charts are broken on a closing basis, then it is reasonable to expect more of the recent wobble higher, perhaps even new all-time highs. However, neither indicators nor the price itself are monuments to strength at the moment.
Please stay safe!
