THE BOTTOM LINE
The stock market has completed a ten percent decline off the all-time high as measured by the S&P-500, and a subsequent recover rally is showing sign of fatigue short of overhead resistance defined by some key supply and demand indicators. The price decline may still have unfinished business to complete before any renewed assault of all-times can develop. Otherwise, a renewed assault on new all-time price highs may develop if gathering strength can propel some key supply and demand indicators to rally above their negative divergence lines. This implies that April may be a very important month for the bulls and bears and the resolution of their respective cases.
Recent Lows looking to be Tested
The ten percent decline in the stock market from its recent all-time high has given way to a rally attempt, which struggled this past week while eventually fading into a tight sideways range. It appears that the previous ten percent decline may have some unfinished business, which was mentioned in last week’s update. The unfinished business may include a coming test of the low made during the ten percent down leg.
The internal selling pressure during the price decline was modest at best, and certainly did not generate the kinds of numbers normally associated with tradable bottoms. This suggests that the low to date may be tested in the days ahead, which may lead to a firmer bottom or a break of support surrounding the previous low. A break of the low may set up enough angst to finally drive TATY into the caution zone surrounding the 115-125 level. On the contrary, a successful test of the low may be followed by a brisk rally. Neither outcome is likely going to be resolved quickly given the grudging nature of the late week decline, which appeared to be too contested to sharply break to a new low.
The question of a coming assault on new all-time highs or a break of important support surrounding the previous low to complete potential unfinished business remains to be answered, so let us turn our attention to the condition of supply and demand for some insight about the probabilities surrounding the recovery rally.
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 formation. TATY finished the week at 133 below the red zone, which now represents resistance to any further rally in the price, because TATY has formed a series of lower lows and lower highs after negatively diverging with the still rallying price while the price was setting new all-time highs. Unless TATY gathers enough strength to rally back above the red zone surrounding the 140 level, then advantage bears with their unfinished agenda. Think of the price in this situation as being a fatigued athlete trying to run faster against a sharply increasing headwind. He may yet prevail but huge amounts of energy are being expended with relatively little to show for it.
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 shown overlaid in red and green candle chart format. SAMMY has been highlighted in these weekly updates as containing an abundance of information, and it still does. Having peaked at an all-time high for the indicator back in the summer, SAMMY has been fading the record setting price ever since. Big tops rarely form quickly but tend to exhaust themselves over weeks, or months, and in some cases years. SAMMY has been suggesting for months that the force driving the price to consecutive all-time highs has actually been in a slow atrophy since last summer, which finally drove SAMMY into the recent oversold zone, quite a trip!
Having finally become oversold, SAMMY bottomed and is now trying to rally back above the double down sloping negative divergence lines, which were formed when SAMMY parted company with the still rising price. The probability of new all-time price highs will remain muted until SAMMY gathers enough strength to rally back above these two declining (magenta and red) resistance lines. If the price decline still has unfinished business to complete, then SAMMY is likely to fail on any attempt to breach these two negative resistance lines to the upside. On the other hand, any unfinished business price decline making a new low will not likely bottom until SAMMY gathers enough strength to form a positive divergence with the still declining price. If such an ongoing decline manages to push TATY into the caution zone surrounding the 115-125 level, then that would bring about a discussion about the potential for a “BIG CHILL” warning, which so far has been AWOL for the bear case.
STERLING — A REPRESENTATIVE OF A FAMILY OF SHORT TO INTERMEDIATE TERM TRADING INDICATORS
STERLING is shown above in the upper panel with the S&P-500 eMini futures contract in the lower panel. Having painted out a positive divergence (green dashed rising line) shortly before the low to date for the decline, STERLING has then been traveling in sync with the price. If the price low is going to be successfully tested and the recovery rally is to resume, then STERLING may turn back up in advance of a coming bottom. This is what STERLING tends to do best, which is to diverge with the price at tradable turns both up and down.
