MARKET ENVIRONMENT: by Woody Dorsey.
December weakness resolve into a surprising January recovery. Expected Tactical strength is now maturing. Weakness is profiled into 2/22.
- Near Term Diagnosis: Sentiment is 61% Bullish today.
- Interim Term Diagnosis: The 12/26 Low was an Interim low. Timing allows for recovery rallies by fits and starts into April or May.
- Long Term Diagnosis: Repeat: “Equities have likely registered an important Cycle High. The next major Low is due in 2022.”
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MARKET TIMING: The nominal trading pattern has been “friendly into 1/18 or 1/22,” as projected for many weeks. This worked out well. Now, 1/18 and 1/22 are each potentially individual high days. There may be a spike and some confusing volatility. If there is a Wall resolution or an end to the Shutdown, fireworks could occur, both ways. The pattern also allows for lingering upside into 1/30ish and the next low seems to be centered on 2/22ish. Again, the Interim Trend is now positive and may last for a few months.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment has identified 2800-2820 as Key Resistance and the 2350 level as Key Support. Sentiment remains positively trending. I am the lookout for any really notable spike in price and sentiment.
The DORSEY Intermediate Market Sentiment registered panic levels at the 12/26 lows just as a behavioral theory would expect! Sentiment is recovering but it is not yet overtly exuberant. Still, it may be nearing some froth.
MARKET SUMMARY: The profile remains for potential strength into 1/18 or 1/22 and or eventually into 1/30-ish but, no longer. Next nominal trading low is due 12/22ish. But, “Assume nothing. Use Stops. Stay light. Don’t chase. Opportunities come to those who wait.” It would be ideal if there were a news spike to sell into. Don’t get too excited.
Trading Instrument (Gary Uses) My Trading Instruments are all based off of SPX numbers, but for long side trades I use (SSO) the 2x leveraged etf that follows the S&P 500 and when expecting the market to move lower, I use (SDS) the 2x leveraged etf that follows the S&P 500, it moves higher when spx moves lower.
TECHNICAL VIEW by Gary Dean: The bulls continue to grind higher with little pullbacks along the way. But that does NOT make just jumping long safe. The SPX is at some major resistance and there are bearish divergences in place. I am on the side of moving to cash in this area and will use a break below 2605 as my stop. We very well could head higher, but this was a good trade and I don’t want to be greedy here. If the bulls do try higher, 2654 would be the next resistance line to watch.
For the bears to get any momentum going on the downside, they need to get the SPX below the short term bull/bear line at 2596. Until that happens, the bulls will continue to try and push higher. If they succeed in breaking below the bull/bear line, then we could see 2568 and the 2520, which is the major bull/bear line for this move higher.
As you can see on the daily chart, the 50 dma is right where sellers stepped in and what the bulls need to break above to try for the 2654 resistance. With the bearish divergences in place, a breather makes sense. The preferred pattern remains as an ABC pattern. I believe it will not be straight up and clear as the chart shows, but keeping things simple, we should be in the wave C up now. It very well could morph into a couple of zig zag abc moves up, but it is still suggesting higher.
Summary: We have been in a couple great trades. I am on the side of moving to cash today at some point before the bell sounds. There are bearish divergences in place and some heavy resistance. A pull back or breather makes sense, but not something I would look to short until we see support broken to the downside. One can use a break of 2605 as a stop or 2596. I am on the side of 2605 and if we head higher, just moving to cash by days end. G-
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