Slow Moving Bear
Slow Moving Bear

Slow Moving Bear


A failed “phony” bounce this past week resulted in new intraday S&P-500 and S&P-500 eMini futures contract lows at 3810 and 3807, respectively. These new intraday lows left in their wake positive divergences in TATY, the TATY Premium/Discount Indicator (now touching the green buy level), SAMMY, STERLING and a host of other supply and demand indicators, which implies the probability of a rally of unknown duration and potency to relieve the current oversold conditions. While many pundits are rushing to call a bottom in the bear market, the weight of the evidence does not favor the touch of the 38% Fibonacci retracement level as sufficient evidence that a bottom is in, and the bear market is over.

New yet to arrive sell signals in TATY, SAMMY and STERLING, or in all three simultaneously would very likely result in assaults on lower Fibonacci targets and previous chart support shown as horizonal blue rectangles on the charts. We will be carefully monitoring the counter-trend rally for signs of exhaustion and/or expiration. However, defensive measures have already been put in place over the last several weeks, so any further defensive measures will be subject to our ongoing analysis of additional potential risks to client wealth.

Clients should continue to expect sharp and powerful price movements both up and down, and for a continuing volatile investment environment. Bear markets generate stresses in the marketplace and this stress is constantly probing for built up excesses and weakness, which often results in the unexpected and spontaneous melt downs in previous “darling” stocks. Given that individuals, institutions, corporations, and global governments at all levels are gorged on debt, the bear market would appear to have a target rich environment to probe for excesses and previously unknown weaknesses. In bear markets the surprises tend to be negative and often large.  



Screenshot (834)

On Friday afternoon the S&P-500 reached into the zone surrounding the 38% retracement level of the rally off the March 23, 2020 low to the all time high at 4818 (Screenshot-834). The intraday low was 3810 in the cash index and 3807 in the S&P-500 eMini futures contract. These intraday lows extended the series of lower highs and lower lows from the January 4-5th all-time high, which is the classic definition of a downward trend.

Having touched the minimum 38% Fibonacci target for the retracement of the rally leg off the March 23, 2020 low, the zone surrounding these new lows for the decline at 3810 and 3807 now become a key level to watch in our analysis going forward. A violation of this level on a closing basis would imply that the nascent bear market would likely assault lower Fibonacci targets and/or previous support zones shown as blue rectangles on Screenshot-834.

Here is a quote from last week’s update: “However, this week STERLING is a bit of an odd duck, because the bounce beginning Thursday was not foreshadowed by a positive divergence in STERLING, which may cast a shadow on the longevity of the bounce. If I were long the bounce, the failure of STERLING to confirm it would cause me some angst”. It turns out that this prototype version of STERLING was deadly accurate as the bounce was a phony, which immediately turned lower to new intraday lows this past week. By the close on Friday STERLING was telling a different story, which will be covered in that section, as this prototype appears to be emerging as a uniquely accurate new weapon in our panoply of supply and demand indicators during these tests in the crucible, which is the stock market.



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 caution zone surrounding the 115-125 level and is still very oversold, the price rally early last week having failed resulting in new intraday lows. However, sharp eyed investors will notice that TATY and its Premium/Discount indicator in the lower panel both ended the week positively diverging with the new intraday lower low. This implies the probability of a coming rally, which depending on its internal strength may relieve the now lengthy oversold conditions in the stock market.

A rally strong enough to finally relieve the oversold conditions may push TATY to assault the magenta down sloping negative divergence line, or the red zone surrounding the 140 level. A TATY rally failure at, or near either of those targets would trigger another “BIG CHILL” warning, which would in turn potentially foreshadow a renewed assault on new bear market lows below the 3810 and 3807 levels respectively for the S&P-500 cash index and futures. The decline to date has been orderly and without much evidence of panic, but a breach of 3810 and 3807 respectively would likely keep the odds of acceleration lower at significant levels of peril.



SAMMY is shown in yellow with the S&P-500 eMini futures contract overlaid in red and blue candle chart format. The brief bounce in the price this past week failed to result in SAMMY generating enough strength to rally above its long term yellow dashed support line but did result in the formation of a positive divergence with the new intraday spike lows in the price. The positive divergence recovery in SAMMY appears to be weaker than in TATY, so SAMMY may be suggesting a 3-5 day bounce to relieve the oversold conditions as opposed to TATY perhaps suggesting something longer. We will be carefully monitoring both for signs of exhaustion, so the length of time is not of prime importance, but the levels at which either, or both rallies fail will be significant.

Given that many in the financial media are clamoring to be among the first to have called a bottom in the bear market, which on the contrary we believe the weight of the evidence is suggesting is in its nascent stages, the behavior of all our supply and demand-based indicators over the next several days will likely turn out to be critical. Yes, the bear market has now touched intraday a minimum bear market retracement level for the rally off the March 23, 2020 low and may have ended Friday afternoon before a late 600 plus point Dow rally. However, the odds are not in favor of such an outcome, and violation of S&P-500 3810 and 3807 for the eMini futures on a closing basis will eliminate the bear market ended on Friday hypothesis.


Having warned correctly that the bounce beginning on Thursday a week ago was a phony, this week STERLING (above) is telling a different story having now painted out a positive divergence to the Friday new intraday lows for the S&P and eMini at 3810 and 3807, respectively. However, at this point all STERLING is telling us is that next week will likely experience a rally of unknown duration and potency. The good news is that STERLING is confirming TATY and SAMMY and we should not be surprised, if a rally to relieve the oversold conditions develops. The even better news is that STERLING has been giving extraordinarily accurate buy and sell signals, so the odds would seem to favor STERLING negatively diverging before the expected counter-trend rally in the price begins to fail.

The best of all possible outcomes with regard to TATY, SAMMY and STERLING would be that they simultaneously falter and signal the expected to come counter-trend rally is approaching its termination. If that were to happen coincidentally with a new “BIG CHILL” warning, then the odds of a renewed assault on 3810 and 3807 would soar, which in turn would likely result in an assault over time on lower Fibonacci and previous support targets. The greater the confluence of indicators the greater the favorable odds.

Screenshot (832)
Screenshot (833)

Screenshots- 832 and 833 are the daily charts of the S&P-500 eMini futures and S&P-500 cash index, respectively. Please note that in Screenshot-832 the “phony” bounce failed at the previously breached dashed magenta horizontal support line, which is at 4100 and which may become resistance to next week’s expected counter-trend rally. These charts are for your additional information.

Screenshot-834 (shown above under “Slow Moving Bear”) shows that the S&P-500 has now breached the 25% Fibonacci support level (orange) and briefly breached the 38% retracement level (red). These levels are measured from the approximate low at 2190 to the all-time high at 4818. The crudely drawn in dashed white lines represent one way the bear market may develop from here, but there are other valid paths.

Screenshot (835)

Screenshot-835 shows the addition of another set of Fibonacci targets generated by starting at the March 2009 low at 666 to the all-time high at 4818. This set of Fibonacci targets has two levels in confluence with the levels shown in Screenshot-833, which are 3800 and 3200. So, it should come as no surprise that the nascent bear market decline may struggle to breach the 3800 level early on. However, if the market is dealing with a large “degree” bear market, which is supported by some weight of the evidence, then the 3800 will be breached, and then the decline will begin to test lower Fibonacci levels and previous support shown as rectangles on the chart.

And finally, a breach on a closing basis of the March 23, 2020 low at approximately 2190 would confirm the existence of the hypothesis of a large “degree” bear market at work, which would be a huge negative and open up possibilities and probabilities we do not want to even contemplate at this point, because of the wealth destruction implications it may have for investors, which do not have access to our kind of supply and demand analysis. Nevertheless, one of the missions of our firm is to provide ongoing market education to our clients, so we are inclined to brief clients on this potential negative outcome before it ever looms as a growing menace, due to the potential chaos implied by the arrival of conditions from which a breach of S&P-500 2190 would likely occur. We hope the chaotic and volatile conditions surrounding a breach of 2190 never happen, but as I learned as an Eagle Scout “Be Prepared” is always a good strategy.




DISCLAIMER : Optimist Capital LLC, does not guarantee the accuracy and completeness of this report, nor is any liability assumed for any loss that may result from reliance by any person upon such information. The information and opinions contained herein are subject to change without notice and are for general information only. The data used for this report is from sources deemed to be reliable, but is not guaranteed for accuracy. Past performance is not a guide or guarantee of future performance. Optimist Capital LLC, and any third-party data providers, shall not have any liability for any loss sustained by anyone who relied on this publication’s contents, which is provided “as is.” Optimist Capital LLC disclaim any and all express or implied warranties, including, but not limited to, any warranties of merchantability, suitability or fitness for a particular purpose or use. Our data and opinions may not be updated as views or information change. Using any graph, chart, formula or other device to assist in deciding which securities to trade or when to trade them presents many difficulties and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such device. The information contained in this report may not be published, broadcast, re-written, or otherwise distributed without prior written consent from Optimist Capital LLC.