MARKET ENVIRONMENT: by Woody Dorsey.
Nominal tactical weakness has been due into 2/22. Now, to reiterate, “nominal tactical weakness” is not a “Sell” signal. It is just the timing profile. Again, as noted: “The Interim profile is still Bullish.” The December Low was excessive and the rebound is becoming excessive too. If a corrective range is forming, another or, several 2-3 day declines may occur over the next two weeks. Now, the next nominal trading high is due near 4/10ish. That does not mean stocks are just going higher from here to there by any means. It makes the most tactical sense for stocks to correct or to become congested for awhile.
- Near Term Diagnosis: Sentiment is 83% Bullish today following a relatively rare 97% bullish yesterday. These are clearly cautionary.
- Interim Term Diagnosis: The Interim Trend still allows for recovery rallies, by fits and starts, into at least early April or perhaps even into June.
- Long Term Diagnosis: Repeat: “Equities have likely registered an important Cycle High. The next major Low is due in 2022.”
Client Question: Can you please send me some details on how Dorsey sentiment data is calculated and compiled? Is there any intraday version of this chart available for trading intraday swings? Thanks.” Answer: Thank you. There are always several levels of learning. One is data, then there is Knowledge and then there is Understanding. That may not be the end of the line but it is a start. If you really are interested in Sentiment, I suggest you read my book, “Behavioral Trading.” It is not expensive and pages 67-105 deal with Emotions in the market. Few people have taken the time to think about or explicate this component. Pages 77-83 deal specifically with my Sentiment Data. A very simple answer to your question is form the book: “Sentiment is collected daily through an optimized polling process.”
While I do not collect intraday sentiment, it is relatively possible via inferential measures. This is a sublet and complicated topic. Almost no one knows what EMA really is and how to work with it. I often tape financial news programs and scan through them to see what the “emotional affect” is when prices are surging or plunging. For instance, when some news comes out which becomes a focus for the attention of the media, one can discern through the tome or decibel level of a “reporter” if it is extreme. I also use facial diagnosis of media “actors” to determine if there is extreme panic or, happiness. Note on up days that are not volatile, much air time is taken up jokes and smiles. Remember the financial media is a mirroring device of the market. Yes, we understand that they do not “know” what is going on but it can be helpful if they insist on any market stories. I know I have digressed here but it is again a subtle topic. I advise a thorough grounding in the tenets of Behavioral Trading as an approach to a new understanding. Thank you.Please email any questions as they are likely to be of interest to all readers and may inspire me to provide more and better answers to the mysteries of the market than I might offer just on my own. email@example.com
MARKET TIMING: The next nominal trading low is due near 2/22ish while the Interim Trend remains nominally positive. This suggests weakness and hesitations but not necessarily huge declines. The market has stayed surprisingly bid while “newsy” events have juiced the bidding. I advise generic skepticism.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment registered 97% on 2/13 which has tagged the 2762 level as an extreme.
The DORSEY Interim Market Sentiment registered extreme panic levels at the 12/26 price lows. This Interim measure of Sentiment has been diverging but is still maintaining a positive bias. As the price profile has been allowing disappointments soon, it makes sense that this measure will now be rolling over to some extent.
MARKET SUMMARY: The next nominal trading low remains due near 2/22ish. Stocks still look more “messy” than anything else right here. There is certainly time and room for some corrective episodes in the next week or two.
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 recent highs came with bearish divergences on all time frames. We are seeing some selling today which fits the profile and I am expecting more. But we need to see the bears push the spx below 2723 to get any traction on the downside. If the bulls decide they want higher still, they need to get above 2761 and then 2771. I don’t believe they have enough fuel in the tank to get there-right?
If we see a break of the 2723 to the downside, we should see a reaction trade down to the 2702 support and then 2694. If selling continues, I believe it will be a swift fast move lower-and 2650-2600 would be reasonable downside targets.
No changes on the daily chart: I am looking at this move higher as a wave 5 of A and once it completes, we should get a sharp wave B down. But once that completes, a wave C up should take us above whatever highs we leave behind. There are some bearish divergences on this momentum indicator, but the true indicator is not showing these divergences. I am not married to this pattern, but will stick with it until proven wrong.
Summary: There were warning signs that have been popping up during that last 3 gap higher opens. We have sell signals on all charts, including the daily. Seeing a 100+ pullback makes sense from these very over extended levels. Watch 2723 and 2702-that is where the bears must get through to gain any respect for more downside.
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Information is for paid customers and may not be copied or distributed Copyright 2019