THE BOTTOM LINE
Weakening medical measurements of hospital, and/or nursing home patients does not often mean the imminent, and/or swift demise of those patients. In like manner, growing evidence of weakness in some Lowry Research, and our own indicators of the balance of supply and demand, does not necessarily mean the imminent expiration of the liquidity driven bull stock market. On the contrary, the current levels of a number of supply and demand indicators are suggestive of an environment of increasing volatility, with additional evidence of decay in the balance of supply and demand likely necessary before the onset of a new bear market.
The bears continue to make their various cases for a meaningful decline, correction, or an imminent and swift onset of an extreme bear market. They may be right, and as far as an increase in volatility is concerned we agree with the bears that an increase is likely. We are now statistically in a season, where volatility normally does increase. However, the favorable probability for increasing volatility is most definitely not yet a clarion call for employing strategies, and tactics designed to mitigate potential rising risks.
The former is a recognition of seasonality at work in the stock market, and the latter would be an overt change in our approach to risk management in response to actual rising risks, and/or a response to evidence of a changing favorable primary trend to an unfavorable trend, which may likely result in losses in client portfolios. We claim no expertise in predicting the future, but we do have an enviable history of managing risks in client portfolios. So, we will leave predicting the future to those, which believe they can accomplish that most challenging of tasks, while we stick to managing risks to portfolios determined by various market generated measurements of the strength, or weakness in the balance of supply and demand..
TATY — A REPRESENTATIVE OF A FAMILY OF STRATEGIC SUPPLY AND DEMAND INDICATORS
TATY is shown above in Snapshot-292 in yellow with the S&P-500 overlaid in red and blue candle chart format. TATY finished the week down sharply at 134 below the red zone surrounding the 140 level, but above the caution zone surrounding the 115-125 level. The premium/discount indicator in the lower panel of the TATY chart has now declined into the discount to value zone, perhaps in advance of a low risk buying opportunity, because as of Friday’s close there is very little evidence that the five day price decline is ending.
SAMMY — A REPRESENTATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS
SAMMY is shown above in Screenshot-312 in yellow with the S&P-500 overlaid in red and blue candle chart format. SAMMY still shows the negative divergence (down sloping lines), which have been in place for weeks now. However, the more recent positive divergence (dashed green up sloping line) on the SAMMY chart was broken with Friday’s decline in the price. This means that once again a new all-time high in the price was made with less force behind it than at the February 2020 then all-time high. This would tend to confirm our outlook for rising volatility, but not necessarily confirm the bears outlook for a substantial decline, or swift onset of a powerful and persistent bear market.
STERLING — A PROTOTYPE TACTICAL SUPPLY AND DEMAND INDICATOR
Sterling, a representative of a new family of new tactical supply and demand indicators, is shown in Screenshot-314.
There are a few dozen versions of this new family of indicators undergoing testing, and the one shown above may, or may not survive the rigors of testing. The goal is for these new market analysis tools to “fling” themselves well below their lower Bollinger Bands in “island” like fashion, as price bottoms begin to form, and to also paint out huge negative divergences as subsequent moves higher begin to atrophy and expire. This atrophy process is shown on the attached daily chart as down sloping dashed magenta lines, which could be very helpful in deciding when to harvest short term profits generated by the previous buy signal in the form of an “island” forming below the indicator’s Bollinger Band. In shorter term trading, the more “mechanical” the entry and exit signals the better. Obviously, a tool with the capabilities would become very important should the stock market remain range bound for months, or years like it did from 1966 to 1982.
As of Friday’s close no “island” candle had yet developed below the lower Bollinger Band, which implies that a tradable hard bottom in the price has not likely arrived — yet! If next week this indicator does paint out an “island” bottom, then the bears will likely have to endure another assault by the price on new all-time highs. In the absence of the registration of a new “Big Chill” warning, then the bull trend must be given the benefit of the doubt, even though both Lowry Research, and our own supply and demand indicators have recently grown weaker. Weaker near all-time price highs is a relative thing, which does not necessarily mean the liquidity driven bull trend is expiring.
Please stay safe!