Summary of this report–Market Bias: Bullish, looking for a rally into 03/08-ish. The SPX rallied 100+ points and topped on 03/09.
MARKET ENVIRONMENT: by Woody Dorsey.
This is still a “rare market environment.” The January parabolic “Buying Virus” was harshly retraced as expected. I understood that the 1/26 High was cogent and that, “the best correction of the year and perhaps the last 6 months,” is underway. Rate Rises are the expected and inevitable “cure” for the excesses of the “Lapdance of Liquidity” which enabled the Bull market in Stocks. As I noted on Monday: Stocks had bottomed, VIX had topped and Bond downside was discounted. This is a great trading market.
- Near Term Diagnosis: Sentiment is 84% Bullish today. Global equity markets have nominally “papered over” their turmoil. This is still a world of very short term trading opportunities. This market is not for “Believers.” Stay light. Stay flexible.
- Interim Term Diagnosis: An interim high occurred and a wonderful correction occurred. This corrective phase was preferred to be a quick “Clipper.” It looks like an advertised “Buy the Dip,” has been registered but upside from here is actually a new and different wave.
- Long Term Diagnosis: This rare “Lapdance of Liquidity,” initiated by Central Bankers, has likely culminated but, a longer term top building structure may still take some time.
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MARKET TIMING: As I noted on Monday morning: “The preponderance of indicants suggests that the trading low was registered on 2/9.” Stocks and the VIX did bottom. The profile continues to prefer bounces into near 3/8. To reiterate: “the 1/26 price High is a defined extreme. I prefer that this mini crash will be quick. The “bounces into March will be a big tell and maybe a big opportunity.” The market has proven itself but, having done that, there is no reason it can’t get quiet and confusing for a bit before resuming its upwards Mach into March.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment became extraordinarily High in January. The final 99% on 1/29 tagged the High. The 2% and 1% Bullish readings last week followed by another 1% reading on 2/9 created a panic pessimistic short term low. Sentiment is now improving but may be signaling ranges near term.
The DORSEY Intermediate Market Sentiment made an extraordinary optimistic extreme. Parabolic price behavior is always coincident with unsustainable emotional assumptions which are always harshly retraced. Indeed, a major, “Emotional Error” occurred in the stock market. This will take some time to be understood and resolved. Bounces have been expected and the expected Recovery might make the Bulls forget what just happened.
MARKET SUMMARY: An interim market High was registered on 1/26 and the expected correction put in a panic trading low on 2/9. The profile preference is for more recoveries even towards 3/8ish. Thus a wonderful trading range with an upward bias is likely.
TECHNICAL VIEW by Gary Dean: The preferred pattern from a technical view-is that we are in the process of making a wave B up. The target has always been 2728 and 2718 was close enough for me to move to neutral. Things have gone as planned and I don’t feel the need to try and hold for the last points. I would rather see how traders react up here. If they can break through the 2728 resistance, then 2743 would be next. If they decide enough pressing higher and take a breather, 2670 is the first support with a pattern target area 2636-2614 and 2590.
Any of those support levels if held-would be able to fit that pattern. As you can see on the chart below-the preferred pattern is we are making the final wave c up to complete wave B-with the wave C down pending. Now wave C doesn’t have to take out the lows, but a descent point drop would be expected for the wave C (if this is the pattern) If things change, so will this pattern and wave structure. But for now, this is my preferred pattern.
I am not sure if they need to touch the 2728 resistance or not, but the 15 minute chart is showing signs of exhaustion here and I wouldn’t be surprised if start to see some backing and filling-with target 1 being 2670. Below that support, then the inverted head/shoulders targets come into play 2634-2614-2590. Stay open minded here and be willing to switch sides if needed. Neutral is a nice position for me. But if my arm was forced to pick a direction (short term) it would be lower to 2670.
Wave (3) was labeled complete and we are now in the process of making the wave 4 down. Once this bottoms-a wave 5 up should begin. If we need to head lower to complete the wave 4, 2535 and 2465 would be potential targets. 2525 was hit last week, so if they take out those lows, 2465 would be the next low to watch for to complete the wave (4) down-and then spring board higher for the 5th wave up.
Summary: The preferred pattern is wave A down completed and we are now wave B up is near completing with a wave C down on deck. The inverted head/shoulder pattern is in play here-and we could see 2634-2614-2590. and still be within the parameters of this potential bullish pattern. If the bulls continue higher-2728 and then 2743 are the upside targets. 2670 is important support and if broken-we could see the above support levels tested.
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