THE BOTTOM LINE
The price has continued to press new all-time highs for nine out of the last ten days, which demonstrates the power of global excess liquidity to move prices higher, as it is seeking a home, where it is likely to be treated best. Currently, investors remain convinced equities are that best option.
The rally is, and has been impressive in its ability to touch new high after new high, but at this point has not been able to generate the strength in TATY, which confirmed previous bull market rallies in their hay day, post the 2003 low comes to mind, which was shown in last week’s update. The good news is this may yet come to pass, and if TATY begins to oscillate with bottoms near the red zone surrounding the 140 level, and tops near the 160 level, then the bull trend is likely to have the potential to extend and/or accelerate higher for months, as compared to days or weeks. Otherwise the struggle between the bulls and bears may result in rising volatility for the remainder of the summer, and perhaps fall should our supply and demand metrics begin to fade instead of grow stronger.
Last week’s update reviewed the development, and subsequent successful conclusion to a rare small degree diagonal triangle. It also assigned a low 20 percent probability of the completed diagonal being part, or a building block, of an even larger diagonal, having not being confirmed by any fade, or negative divergence, in our TATY and SAMMY indicators, nor in Lowry Research indicators, which remain favorable to demand over supply. The price has subsequently continued to rally for nine out of the last ten days setting new all-time highs along the way. Investors continue to choose the equity market for their excess cash.
TATY — A REPRESENTATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS
TATY is shown above in Snapshot-282 in yellow with the S&P-500 overlaid in red and blue candle chart format. TATY finished the week at 148 little changed.
The price continues to creep higher, but at this point TATY has still not generated enough strength to approach the blue zone at the 160 level. As explained last week, should TATY begin to oscillate with bottoms in the red zone and tops near the blue zone, then the life of the current bull run would likely be extended by months as opposed to days, or weeks. It takes evidence of very strong demand versus very weak supply to drive TATY into the blue zone surrounding the 160 level, and that level of strength of demand over supply tends to linger, and has the potential to accelerate into a virtuous cycle, as buying begets buying until excess liquidity is finally exhausted. At this point there has been no confirmation of demand over supply having reached this stage, but it is not too soon to talk about how our supply and demand metrics would likely move toward confirmation that such a condition may be at hand.
SAMMY — A REPRESENTATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS
SAMMY is shown above in Screenshot-245 in yellow with the S&P-500 overlaid in red and blue candle chart format. SAMMY basically treaded water this past week while the price surged to new all-time highs. And, the long standing negative divergence in the indicator relative to its February 2020 high versus the current price touching new all-time highs remains in place. If the price is to continue to move higher, then I would like to see SAMMY move higher with it. If SAMMY was to begin to accelerate higher, then the price may as well increasing the odds of the virtuous cycle discussed in the previous section.
Obviously, the stock market is at an important juncture, as the evidence is beginning to mount the market may have, or may be close to having, completed a leadership rotation sufficient enough to reinvigorate demand. However, at this point it is difficult to determine, if the failure of the counter-trend rally in the bonds to break lower maybe be still supporting an equity rally, which may still need a breather, as the bond market managed to move higher this past week after looking quite weak the previous week. The lack of a viable alternative to stocks leaves professional investors with only one realistic choice, which is equities for their copious amounts of excess liquidity.
Please stay safe!