We have made the observation several times over the recent weeks that volatility would likely increase as the stock market marches toward the 2020 election. The events of this past week are a good illustration of why we have made this comment, as the stock market turned from a quiet creeping rally into a decline driven by a whiff of uncertainty courtesy of the occupant of 1600 Pennsylvania Avenue. However, so far the spontaneous selloff remains well within our expectations, and if certain indicator levels are not breached, we may want to put some excess cash to work upon any objective buy signals being generated.
TATY — A REPRESENATIVE OF A FAMILY OF STRATEGIC OF SUPPLY AND DEMAND INDICATORS
TATY, shown above in the attached chart in yellow with the S&P-500 overlaid in red and blue candle format, dipped briefly into the red zone surrounding the 140 level, and finished the week at 142, well above the caution zone surrounding the 115 level. If TATY makes a bottom in, or near, the red zone in the days ahead, and the premium/discount indicator in the lower panel turn up from the minus eight level, then that would bode well for the continuation of the bull trend. Holding these levels would be an objective measurement suggesting the weak have been driven from the market, something it does periodically, and which would grade out as a significant positive potentially for the continuation of the bull trend.
SAMMY — A REPRESENATIVE OF A FAMILY OF TACTICAL SUPPLY AND DEMAND INDICATORS
SAMMY is shown above alone, and below with the SPXL 3X S&P-500 ETF overlaid. SPXL 3x is used for reference purposes only.
SAMMY has not yet issued a buy signal, but it is showing some potential that sellers have been motivated, and may soon exhaust themselves for this leg down. However, evidence of exhausted sellesr is a necessary condition, but not a sufficient condition for a new buy signal. A new buy signal will require objective evidence of exhausted sellers, and objective evidence of resurgent demand. Also, the premium/discount indicator shown in the bottom panel of the TATY indicator must turn up to at least the minus three level, which would be indicative that the discount was fleeting as buyers were returning and active. These conditions must be monitored carefully in the days to come, as they are critical factors potentially resulting to a new buy signal.
THE BOTTOM LINE
The current correction appears to be part of the expected increase in volatility as the stock market moves toward the 2020 election, and the likely uncertainties created by that process in a sharply divided electorate. However, volatility in the market is the mother of trading opportunities, so we embrace the days ahead with optimism that our proprietary supply and demand indicators will allow us to profitably navigate both the risks, and opportunities ahead.
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