THE BOTTOM LINE
This past week the price plunged on angst over the lingering debt limit debate then rallied as rumors spread that an agreement was getting closer, and the price tried to begin to rally, then euphoria broke out over the prospects of AI, artificial intelligence, creating a new wave of prosperity and the price soared into the end of the week erasing the losses during the plunge in the price. The price took a round trip to net zero, but a cohort of supply and demand indicators notched another week in their growing negative divergences, additional evidence that the rally off the October low is likely a rally in an ongoing bear market. Taken together, it appears likely that an assault on the next level up chart resistance, which also is a 62% Fibonacci retracement level, is likely before the bear rally expires. This in turn implies that the bear rally may linger into the dog days of summer, although not required.
Investors should be prepared to experience rising volatility as the expiration of the bear market rally approaches, which could happen at any time, but now seems more likely toward the summer during a likely assault on the next level up chart and Fibonacci resistance surrounding the S&P-500 4300 level.
Given the status of our supply and demand indicators, the conflicting information emanating from several Lowry Research indicators, uncertainties revolving around the safety of global financial institutions, and geopolitical uncertainties, we remain content to continue to adhere to our strategy of rolling over virtually risk free three- and six-month T-bills yielding 5% (plus or minus) until better risk adjusted opportunities are created by the bear market. Bear markets ferret out previously unknown weaknesses in the global financial system, which then often “spontaneously” collapse triggering a new crisis of uncertainty. Markets respond negatively to uncertainty, especially to crises where it is difficult to quickly calculate the extent of the potential risks of contagion. These are the realities of the world we now live in, making risk management our highest priority.
Net Zero
Volatility returned to the stock market this past week as the price plunged on angst related to politicians playing “chicken” with the “full faith and credit of the United States”, which translated for the more cynical among us to mean never waste an opportunity to get free TV time, even with an artificially manufactured crisis if necessary. Of course, by the end of the week hints of a debt limit deal moving closer together with the rising market euphoria over AI, artificial intelligence, for those of you not following technology “blow by blow” resulted in the plunge in prices being almost completely reversed. So, the round trip in the price netted out to almost zero change, except for causing last week’s very immature negative divergences in key supply and demand indicators advancing another negative notch on the charts, a process which still appears to be early in development.
The best characterization of the rally in stocks is a rally in an ongoing bear market, which eventually will roll over into a new leg down in the bear market. Given that the bear market began on January 5th, 2022, almost a year and a half ago, then the next leg down in a maturing bear market has some potential to accelerate lower as recognition spreads among those, which bought into the currently developing bear trap. The eight Mega cap tech stocks which are driving the cap weighted indexes have done a good job of masking the fact that sans the contribution of these eight stocks most of the popular stock indexes would still be under water for 2023! This means that the “average” stock investor is not enjoying the kinds of gains suggested by some of the headline stock indexes.
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 in the red zone at 144 completing another week negatively diverging with the rising price, but not yet flashing a “BIG CHILL” warning, which would be a very serious negative development. I expect the current price rally to attempt to assault overhead resistance, which also surrounds the Fibonacci 62% retracement level near S&P-500 4300. If this level is approached with a cohort of supply and demand indicators negatively diverging followed by TATY completing a “BIG CHILL” warning, then the long-anticipated end of the bear market rally may finally be at hand. The down sloping magenta line depicts the negative divergence in the indicator compared to the rising green line depicting the rallying price.
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 like manner as TATY, last week’s budding negative divergence with the price moved another notch in the negative direction. This reflects waning support driving the price higher since TATY and STERLING are graphical representations of the ever-changing balance in supply and demand. At this point, the negative divergences in TATY and STERLING do not appear to have reached a critical point, hence my suspicion that the next higher chart resistance surrounding the 62% Fibonacci level is likely to be assaulted before the countertrend rally finally expires. As with TATY the negative indicator divergence is shown by a down sloping dashed magenta line and the still rising price with a dashed rising green line.
STERLING — A REPRESENTATIVE OF A NEW FAMILY OF SHORT TO INTERMEDIATE TERM TRADING INDICATORS UNDERGOING TESTING
STERLING is shown above in the upper panel with the S&P-500 eMini futures contract in the lower panel. The color coding remains the same down sloping red and magenta lines for negative indicator divergences and up sloping green lines for the rising price. TATY, SAMMY and STERLING are all showing developing negative divergences with the rising price, and the negative divergences appear to be not yet at a critical stage of development although STERLING appears to be further along than TATY and SAMMY. This implies that an assault of the next level up chart resistance surrounding S&P-500 4300 is likely before all three supply and demand indicators reach a critically mature stage.
Screenshots-1226 (above) and 1227 (below) show the next higher chart resistance, which is also a 62% Fibonacci retracement level, shown as a dash red horizontal line near S&P-500 4300. Sharp eyed investors will also notice in Screenshot-1227 that the recently breached horizontal lower dashed magenta resistance line is now acting as support on declines echoing the basic chart reading guideline of resistance once breached becomes support. This new implied support level plus what appear to be immature negative divergences under construction imply an assault of the next level up chart resistance is likely, which in turn implies the bear trap may not be complete until some time in the summer, although not required.
Screenshot-1228 (below) has been shown numerous times with copious explanations and is updated here for your additional information and perspective. Once the bear rally is complete and the bear trap is sprung, then I’ll begin to update the implications of Screenshot-1228, which are quite serious, especially if the March 23, 2020 low at S&P-500 2190 were to be breached on a closing basis.
