THE BOTTOM LINE
The recent decline in the stock market has been orderly, marked by only modest selling pressure. The absence of a “BIG CHILL” warning, combined with this limited selling activity, suggests that the great bull market is not yet over—contrary to what one prominent bear has asserted.
However, if the current weakness persists and intensifies to the point that the TATY indicator falls into the caution zone near the 115–125 range—the first step toward triggering a new “BIG CHILL” warning—the odds could begin to tilt in favor of a more sustained decline, offering the bears reason for renewed optimism.
For now, unless internal measures of selling pressure increase significantly, the probabilities continue to favor further attempts at new all-time highs.
Tired Bull or Room to Run
The bears finally got some marginal relief this past week, as the market experienced an orderly decline on modest selling pressure. In the absence of a “BIG CHILL” warning, this pullback will likely set the stage for another push toward new all-time highs once the weakness runs its course—assuming, of course, that internal measures of supply and demand don’t shift more decisively in favor of supply in the meantime.
Still, the modest selling pressure didn’t stop one long-time bear from boldly proclaiming that the great bull market is over and that a collapse on par with some of history’s worst bear markets lies just ahead. As a football coach might say, bold plays are brilliant if they work—and downright foolish if they don’t.
Fortunately, our role is not to predict the future but to manage risk—a far more practical and disciplined pursuit. With that in mind, let’s take a look at what our supply and demand indicators are telling us about how to navigate current market conditions, especially given today’s historic valuations and persistent bullish sentiment.
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 142 with a negative divergence (down sloping magenta line) in place dating back to August. This setup implies some price weakness but in the absence of a “BIG CHILL” warning it is difficult to make the bear case. However, the negative divergence may foreshadow some continuing weakness perhaps strong enough to trigger a decline into the caution zone surrounding the 115-125 level, which would be the first step toward a “BIG CHILL” warning.
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 green candle chart format. The huge negative divergence in SAMMY dating to the summer of 2024 turned even more negative this past week. So, SAMMY continues to warn that not all is healthy with the great bull market. However, so far, this negative divergence (down sloping dashed line) has not yielded a TATY decline into the caution zone surrounding the 115-125 level. Until SAMMY reverses its negative divergence the price may be vulnerable to weakness.
STERLING — A REPRESENTATIVE OF A FAMILY OF SHORT TO INTERMEDIATE TRADING INDICATOR
STERLING is shown above in the upper panel with the S&P-500 eMini futures contract in the lower panel. STERLING has not yet developed a positive divergence, which would suggest a coming bounce in the price. So, for now the price weakness may linger.
