Special Bulletin: May 26, 2021

“The Market Always Takes Longer to Do what You Think It Is Going to Do”

Back in the early to mid-80’s, when my mother was developing her technique of technical analysis while working as a stockbroker at EF Hutton, she often made that comment (see title above) to me as I was starting my career.  It was meant as a sober reminder that I needed to develop patience and that the stock market didn’t care about my timetable. (Or anyone else’s for that matter.)

I can hear her now in my mind because two weeks ago I wrote, “The stock market is at a critical juncture. In the days (maybe just hours) ahead, the stock market will tip its hand and make an important direction decision.” Well, it has been two weeks and the stock market hasn’t tipped its hand yet. Seems like some things never change, and I still need that reminder. Thanks mom. 🙂 

Having said that, the statement still applies. Only now we are closer in time to that “direction decision.” The outlook is still “look out below, or up, up we go!”

Fortunately, it is not our business to make predictions, but rather to interpret the current market conditions every day based on specific internal indicators (the “math of the market”) which we have found reveal the true footprints of money. Central in our process is the study of the price and volume action of the major stock market indexes.

In that same blog we stated, “The S&P500 needs to hold above its all-important 50-day mav asap. Big test tomorrow.” (Well at least I got that one right. LOL) The fact is the S&P500 has tested and held its all-important 50-day mav twice in the past two weeks. Please pay close attention to that last statement. That technical fact itself suggests that the market is hesitating or even weakening, since in a strong stock market a test of the 50 day mav by a major index almost always leads to an immediate and fruitful blast up and off of the mav- often to new highs.

Our April 22nd blog stated, “High stock prices combined with low levels of total trading volume is NOT a good recipe for a continuation of a stock market rally. This kind of current action should raise a few eyebrows.”

That concern is still present. Brand new research completed by our firm today found in the 38 trading days since the holy day of Easter (starting with April 5th) the S&P500 closed up on only 20 of those days, while the Nasdaq finished up only 17 times. Sorry to be demanding, but that’s not a lot of up action for a well-publicized move to all-time highs.

More concerning is of the 20 up days on the S&P500, only 8 of those were an up day in price accompanied by an increase in trading volume over the previous day- known as accumulation. The Nasdaq had only 5 such days.

But to make matters even a bit worse, there were 12 down days where volume increased versus the prior day on both the S&P500 and the Nasdaq during that time period. (However, of the 12 down days, only 9 were true technical distribution on the S&P500 and 5 on the Nasdaq.)

And as if that wasn’t enough reason already to suspect the strength of this “Biden Honeymoon” rally, our research also uncovered something else. Of the aforementioned 20 up days on the S&P500, there were 7 days with an increase of 0.99% or more but NOT ONE of those 7 had higher volume than the previous day. We believe that is a rare and possibly dangerous occurrence near all-time highs and are expanding our research into past market tops for more insight. As for the current market, only time will tell. Buyer beware.

Our Current Market Outlook remains “Uptrend Under Pressure” with a yellow light. The TPM “Core Four” internal indicators show 2 green, 1 yellow and 1 red (see top of page). While the net result is a yellow light, ironically, the signal is not far away from being able to go green. Despite the above discussion on low volume and multiple distribution days, we have to be open-minded and accept that the market can do whatever it wants to do, and that a sudden move to new highs on big volume would upgrade the outlook to green.

The CBOE Volatility Index (VIX) fell below 18 today and closed under its 50-day mav for a third straight day. That is important and a positive development.

What should investors do now? Continue monitoring the US 10 year note rate as an immediate inflation gauge. Be on guard for a vertical violation. Watch to see if the regional bank ETF breaks out of a cup base soon as a “tell.” If the daily number of new 52-week lows on the NYSE stays tame, you can too.

Have a Triumphant day! ® 

Ps. We have closed our Twitter and Facebook accounts. Read about our decision here and here.