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    A Pause or Change in Trend?

    THE BOTTOM LINE

    A negative divergence mentioned in last week’s update has given rise to a budding decline. If this decline fails to breach 4280 on a closing basis for the S&P-500 eMini futures contract, then more assaults on new all-time highs remain likely. This important support level is shown on Screenshot-253 as an orange horizontal dashed line at the July 8th low.

    Screenshot (253)

    If the current decline stops at, or close to, the rising green line shown on Screenshot-253, then assaults on new all-time highs will remain likely, and these (marginal) rallies may take the form of a diagonal triangle, or rising wedge, which would be a diagnostic gift, and likely potentially profitable. This potential outcome would likely take days to complete as triangles tend to “decelerate”, often to a crawl as they plod along on low volume to completion. It is much too soon to assign any probability to this potential outcome, but I want investors to be aware that it is a viable possibility among others.

    Investors should prepare for a potentially volatile summer and fall, especially if interest rates spike higher as some prominent bears expect.

     

    A Pause?

    For several weeks now Lowry Research measures of supply and demand for stocks has been weakening little by little, and although these measures have not yet signaled the rising probability of a major top in the making, they have reached levels consistent with rising volatility, and perhaps some corrective activity.

    Last week’s update showed some developing negative divergences in some representative indicators, which continued to weaken this past week. The negative divergences appeared to begin to weigh upon the price, and by Friday a persistent decline had begun, and continued into the close. A close basis the S&P-500 eMini futures contract below 4280, the July 8th low, would likely trigger more aggressive selling, and perhaps the largest correction in weeks. Investors should expect a volatile summer and fall in the markets, especially if interest rates resume their previous rise (declining prices for bonds), as a number of prominent bears are suggesting.

    TATY   —   A REPRESENTATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS

    snapshot-284

    TATY is shown above in Snapshot-284 in yellow with the S&P-500 overlaid in blue and red weekly candle chart format. TATY finished the week lower at 138, which is marginally below the red zone surrounding the 140 level.

    If the price continues to struggle, but remains above the important 4280 level basis the S&P-500 eMini futures contract, then TATY may weaken into the caution zone surrounding the 115-125 level. This would be a “tell” that conditions may be progressing toward making the price more vulnerable than a just run of the mill pause. If TATY completes a “Big Chill” warning, and Lowry Research indicators, especially a crossing of their selling pressure index to above the currently dominant buying power index, then volatility may turn into outright corrective activity. Can a correction, or major top preceding a bear market occur in the absence of a “Big Chill” warning, well yes this is the stock market and anything can happen, but the odds are not favorable for such an event. TATY has been a very reliable indicator down through the years, but nothing is perfect in this game of probabilities.

    It is much too early to even mention one possible outcome, but should the 4280 level hold, and indicators remain weak and void of evidence of resurging demand, then the S&P-500 may be constructing another diagonal triangle, also known as a rising wedge. If that is the case, resolution lies days into the future, and TATY may very well then have enough time to paint out a “Big Chill” warning in the interim. Such an outcome would be a huge diagnostic gift, which probably queers it as happening from the get go. However, until the possibility is eliminated it would be worthwhile to monitor the possibility.

    SAMMY   —   A REPRESENTATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS

    Sammy Daily (Screenshot 252)

    SAMMY is shown above in yellow with the S&P-500 overlaid in red and blue daily candle chart and below weekly format. The Daily shows the negative divergence (down sloping dashed magenta line), which preceded Friday’s decline. Sharp eyed investors will also notice a yawning positive divergence prior to the mid-May bottoming price, even though I did not draw the divergence on the chart. SAMMY does not diverge at every top or bottom regardless of degree, but it does have a record of accuracy when it does, which is why I use it to illustrate waxing and waning strength in the balance of supply and demand for clients.

    Sammy Weekly (Screenshot 251)

    If the price breaks support at the 4280 level basis the S&P-500 eMini, then we will be watching SAMMY carefully for a “tell” that savvy investors are buying into the decline in size, which causes the positive divergence, as the price is still declining into its eventual bottom. Ironically, SAMMY tends to be better at locating tops than bottoms, which is completely opposite most indicators, which can often locate bottoms, but are usually outright awful at locating tops. Euphoria dissipates slowly, and is a gossamer like emotion, wispy and very difficult to measure, as opposed to fear, which can hit investors like a sledge hammer resulting in panic selling into bottoms.

    SAMMY is shown also in weekly format in Screenshot-251, which has been explained many times in these updates. Even with the recent new all-time highs in the price, SAMMY remains below its level of February 2020, so its strength remains less than at that important 2020 all-time high.

     

    Please be safe!

     

    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.

    ByOptimist Capital

    Optimist Capital Institutional Wealth Management for All

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