THE BOTTOM LINE
An expected relief rally of “unknown duration and potency” did finally commence this past week. This rally does not appear to be complete and may linger for several days before encountering any meaningful resistance. However, the weight of the evidence does not favor the bear market having terminated at the Fibonacci 38% retracement level at S&P-500 3810, so for the time being we will treat any further rally as countertrend and subject to an eventual return of the bear trend.
The following quote from last week’s update does a good job of summarizing the status of the stock market: 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.
A relief rally of “unknown duration and potency” did begin this past week and does not appear to be complete but has gotten off to a powerful and persistent start, which is consistent with how bear markets continue to trick investors into buying declines. Yes, S&P-500 3810 and 3807 in the eMini futures contract may have been the terminus of a brief bear market, but at this point the weight of the evidence does not support the case that a new leg up in an ongoing bull market began at 3810 and 3807 respectively.
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 at 131 and above the caution zone surrounding the 115-125 level. The positive divergences in TATY and the Premium/Discount indicator in the lower panel have once again foreshadowed a coming rally in the price. Last week’s update noted that the Premium/Discount indicator in the lower panel had reached the green “buy” zone at the minus three level, and investors did rush in to be buyers this past week.
If the rally is countertrend as expected, then TATY is likely to stall out as it approaches the red zone surrounding the 140 level, or as it approaches the previous negative down sloping magenta line, or possibly both. A TATY rally failure at, or near, either of these levels may trigger another “BIG CHILL” warning, which in turn would likely be a harbinger of the expiration of the counter-trend rally, and the beginning of the next leg down in the nascent bear market. On the contrary, should TATY begin to oscillate with bottoms forming in, or near the red zone and tops near the blue zone at the 160 level, then the odds would favor the brief bear market having terminated at S&P-500 3810 and 3807 respectively.
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 red and blue candle chart format. In like manner as TATY, the positive divergence in SAMMY foreshadowed this past week’s rally in the price. SAMMY has rallied strongly enough to approach resistance at the down sloping negative divergence dashed magenta line, which over the coming days may loom as ever stronger resistance. Given the previous deeply oversold condition of SAMMY, the current rally may take some time to begin to wane in any substantial way.
STERLING — A REPRESENTATIVE OF A FAMILY OF NEW SHORT TO INTERMEDIATE TERM TRADING INDICATORS UNDERGOING TESTING
STERLING is shown above and continues to distinguish itself during this bear trend as generating very accurate signals. The positive divergence shown on the chart as a green up sloping dashed line did correctly foreshadow the strong rally of this past week, and its current sharply rising slope implies the rally has more to go and will not likely slow down until STERLING begins to negatively diverge with the rising price, which would likely take 3-5 days to develop, if not longer. So, according to this indicator any meaningful resurgence of the bear trend likely lies several days into the future.
Screenshot-845 (above) and 847 (below) are the S&P-500 eMini futures and cash index respectively updated through Friday’s close. The eMini futures as expected has rallied above the previous support at 4100 and the S&P-500 cash index in Screenshot-847 has bounced off the 38% retracement level shown on the chart as a red horizontal line. This minimum Fibonacci retracement level of the rally off the March 23, 2020 low to the 4818 all-time high could signal the end of the bear market, but the weight of the evidence does not yet favor such an outcome.