Special Bulletin: May 11, 2024

Will this “Subpeak” Lead to a “Vertical Violation,” aka Crash?

Where, oh where, can the volume be? That was the original title of this post but the potential for an eminent sharp price decline in the stock market necessitated the new title.

Up volume is to a bull market in stocks what oxygen is to your lungs. Without it, you can’t last for long.

The stock market (as measured by the main indexes) is forming an ominous pattern called a “sub-peak” and is doing so on consistently low volume. This is creating a sputtering, or a sort of “last gasp” effect, in the upward move in stocks this month. This is not an ideal, healthy set-up for immediate further gains. 

Positively, the major indexes have moved back up and over their respective 50-day mav’s. Bravo! However, prior high price resistance lies directly above and may make itself felt soon.

Let’s be clear about one thing: we are not predicting a crash… yet. We are now, however, demanding that the stock market’s technicals confirm this new rally attempt with a high volume “Follow-Through Day” asap before getting aggressive. After that event we would expect the key indexes to hold their 50-day mav’s on any near-term retest (normal pullback). If they don’t, the bears may become emboldened and break it wide open with selling.

The stock market is still working on a new rally attempt and Monday will officially be Day 16. That is longer than normal but still within acceptable historical bounds. This deserves being repeated: the next 4 to 5 days will be crucial for the bulls to assert their case and keep the main indexes over their respective 50-day mav’s. If it wasn’t for recent fruitful (profitable) “gap-up” breakouts in several leading stocks from various industries, it would be very hard to make a strong case for deploying any new capital with the current dearth of strong up volume.

Our Current Market Outlook remains “Uptrend Under Pressure” with a yellow light (the upgrade signal came at 12pm on Friday, May 3rd – SPX 5,121.75). Our “Core Four” (see top of page) has 1 yellow, 1 red and 2 green lights. The VIX spent the entire week below its 50-day mav.

Last week we wrote, “As for the bears (short sports), the current chart set-up is an attractive one with limited controllable risk to the upside yet with big downside potential. Our Core Four will likely be changed to a red, or even a green, signal in the very near future.”  That point about the bears remains. However, in our opinion, most shorts may have (should have) been covered last week when the key indexes closed over their 50-day mav’s. That makes this recent low-volume bounce even more concerning.

Speaking of something that is low: observant investors will notice that the VIX is very low, too. In our experience this is not a healthy situation technically. When the VIX is hitting lows as the indexes are moving higher on lower volume, our research reveals that that generally portends a sharp downdraft. Will the “sell in May and go away” adage apply this year?

Finally, concerning the use of the word “crash” in the title, suffice it to say we don’t have any special insights that one is eminent. We know the odds are small – we get that. However, what we have discerned is that if the market fails here, and the “sub-peak” pattern materializes and gives way to a “vertical violation,” the chances of one increase significantly. What’s the antidote? Higher prices with higher volume produce “green skies” and maybe, just maybe, a “soft landing?”

“And I will punish on that day all who leap on the temple threshold,
who fill the house of their lord with violence and deceit. “On that day,” declares the Lord,
“There will be the sound of a cry from the Fish Gate,
a wail from the Second Quarter, and a loud crash from the hills.
“Wail, O inhabitants of the Mortar, for all the people of Canaan will be silenced;
all who weigh out silver will be cut off.”

Zephaniah 1:9-11 NASB 1995

Game plan: Demand that the main indexes make a strong move up in higher volume and continue to hold their 50-day mav’s. Otherwise, prepare an exit strategy in the event of a pre-election disruption. Pray for the peace of Jerusalem (Psalm 122:6-7). May they prosper who love her.

Ps. Congratulations to the Liberty University graduates of 2024! Now go be Champions for Christ!

Note: You can learn more about The Triumphant Core Four risk management system by clicking here.

Have a Triumphant day! ®