When There Are More Sellers Than Buyers

by JC Parets  -  May 15, 2019

People love a good story.

It’s part of an evolutionary desire to gossip and to hear tales of others even if we know they’re untrue. As homo sapiens, it’s important we know this about ourselves.

You know who definitely knows it? The media. And they’re going to use that desire against you every single day for their own profit. They’ll tell you stories all day, every day, so long as you’re willing to watch and listen. They’re so thirsty for your attention that they’ll tell you anything, just so they can sell ads to their precious sponsors.

It’s their job to make the noise. It’s our job to ignore it.

I’m going to show you the chart that actually tells the real story about what’s going on in today’s market. I comb through thousands of charts a week, and I can tell you for a fact that there’s one underlying theme I’m seeing across the board, including stocks, sectors, and indexes, and that is the overhead supply we’ve been stuck below since early last year.

Here’s a chart of the S&P Global 100 Index:

Two-year history of the S&P Global 100 Index, showing failed rallies into key resistance due to overhead supply.

[Click to Enlarge]

So, here’s what’s happening right now. Stocks around the world rallied into early 2018 and then sold off. Broadly speaking, stocks rallied once again into that area late in the third quarter – and, once again, were met with sellers.

We’ve returned to this area… and failed once again.

Here’s the key, though: Some stocks and some sectors, and even a couple international indexes, have exceeded last year’s highs. The “problem” is that only a tiny fraction of stocks, sectors, and indexes have exceeded those former highs. A large majority are still below them.

For the major indexes to begin a new leg higher, it’s going to take more participation.

Some of the other charts have exceeded former highs and failed. And some, like U.S. small-caps, haven’t even returned to last year’s highs.

Overall, however, I think the chart of the S&P Global 100 tells the story best. We’ve rallied into this area and failed all three times. Why? Because there are more sellers than buyers at those levels. Until the demand for stocks is able finish absorbing that overhead supply, stocks are going to remain below this “resistance,” as we like to call it.

I still think the resolution will be higher. I haven’t seen enough evidence suggesting these are all major distribution tops.

The higher-probability outcome, in my opinion, continues to be an upside breakout.

The way I learned it, the more times a level is tested, the higher the likelihood it’s going to break. Where I grew up, “triple tops” don’t exist – they’re so rare that it doesn’t pay to bet on them showing up.

I believe we break out… but we also need more time. Will we get it by July 4? Maybe. I’d say it’s a 50-50 shot. But I do think it’s coming.

We’ll continue to reevaluate as the data keeps coming in.

To wise investing,

J.C. Parets
Editor, Big Market Trends