Editor's Note: the following analysis was offered this morning via Scott Reamer's technical service. We share this vibe with educational intentions only. For more information regarding Scott's unique approach, please click here.
There is remarkably little to add to the complexity analysis of the markets here; the last two sessions have produced very little in incremental new information for our models.
The same conditions are present today as on Monday: significant divergences are present, DeMark trend exhaustion indicators are present, and the fractal pattern could end at any point now. These conditions however, have been in place for the better part of the last 2-3 weeks while the indices have - mostly - struggled to advance, doing so with some indices making new peaks while others do not - an intra market divergence that is indicative of a fractured and 'weak-underneath' market.
Our complexity models are designed to determine bifurcation points - points at which the probability of a change in trend - up or down - is highest. When the market moves sideways - as it largely has for the past three weeks - our models do not change, thus, our conclusion of being potentially near an important peak remains.
The conditions that our models measure remain as they did two weeks ago, despite the fact that, say, the DOW is 60 basis points (0.6%) above where it was two weeks ago, but the underlying conditions and factors that go into our models have not changed, despite this nominal increase in DOW prices. All the while volatility has decreased, which is remarkable if one thinks about it; given a series of back-to-back weeks where prices have become more and more narrow.
One would expect, as with any 'natural' system, that greater and greater stasis would in fact give rise to a greater and greater probability of the opposite of stasis - volatility. Think of it in terms of plate tectonics: the longer a fault line goes without an earthquake (to dissipate the building pressures) the greater the likelihood of a significant and devastatingly large earthquake. This much is true for all natural systems. You might be interested to know that the human heart is the same way: the human heart actually beats irregularly - almost chaotically. It's too small a difference in beats per minute for you or I to notice but it happens, and it happens all the time. The interesting part is that on rare occasions, the human heart will beat perfectly regularly - with no change whatsoever in beat cycles. When does this happen? In the few minutes before a heart attack.
Our larger point is not a biology or geophysics lesson but rather this: our complexity models have been saying that the probability for a meaningful peak (large degree bifurcation) is significant. That has not changed because the inputs into our models have not changed (materially anyway). Stay tuned.
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