Summary of this report–Market Bias: Bullish from 04/02, looking for a rally into mid April. The SPX rallied 150+ points and topped on 04/18
MARKET ENVIRONMENT: by Woody Dorsey.
The 1/26 parabolic “Buying Virus” High and the Panic Low on 2/9 remain the de facto Range boundaries. And so, the “Trade War’ between Bulls and Bears continues. My Near term timing profile has preferred that bounces would be unfolding into Mid-April. I repeat: “This is a Trading Market. Trade it. Don’t Believe in it. Big Opinions are dangerous.” Exactly.
- Near Term Diagnosis: Sentiment is 58% Bullish today. Stocks took it on the chin late yesterday but today’s recovery infers that traders are too tired of “tape bombs” to take them too seriously.
- Interim Term Diagnosis: An expected secondary Clipper type Correction appears to be over. Yes, the market could really fall apart, at any time, and break down into some deeper support. But, I repeat: “The profile fits much better if the market holds and trades back up into the middle of the range.” I well understand the potential for the “Range” to be violated but the ideal timing for that is not yet here.
- Long Term Diagnosis: The rare “Lapdance of Liquidity,” engineered by Central Bankers has concluded. The parabolic rally into late January was a Mania My graph, “The Seven Stages of Bull Market Behavior,” gives you a picture of that Longer Term perspective. Again, investors typically remain in Denial for some time after an important high. Again, it is not useful to become obsessed on any big picture opinions.
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MARKET TIMING: The market failed from the 99% Bullish on 3/12 into my profiled “Clipper type Correction,” which ended in early April. But, “troubled testy churning,” was allowed. As noted, I am looking for the next “trading high due around 4/17-18.” That profile inferred strength, “emerging out of this market carnage.” Good news for bears: After the profiled April high there is another trading Low due near early May before the rally into June. All of which may just be a zigzag, short covering rally.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment registered extreme pessimism at the 2/9 low. The spike to 99% Bullish on 3/12 signaled that, “the short covering bounce was ending.” Sentiment became dramatic and despondent again synchronous with the recent low. Monday’s 2% bullish was another try for Bears to dominate but they were unable to do so. Price recoveries and price stability if they are able to gain some traction, will provide much needed optimism.
The DORSEY Intermediate Market Sentiment declined back into another typical pessimistic trading extreme resonant with the lows set near 2/9. This measure is struggling higher and that fits best with the price profile for more gains and stability into next week.
MARKET SUMMARY: The profile for a Correction into early April was dramatic but has resolved into the profiled recovery due into 4/17-18 as the context of the range continues to be revealed. After that next trading high, further downside profiles are due. This is a great trading market. Trade it, don’t believe in it. Thank you, Mr. Market.
TECHNICAL VIEW by Gary Dean: The inverted head/shoulders pattern is in play and the bulls need to push the spx above the 2673-2689 resistance to trigger the pattern. If they succeed, the target would be the 2800 area. There is no guarantee it will make it exactly to the pattern target, but something to watch for. I have 3 target areas in which I will be layering out of my long position in small pieces. 2738-2765 and then 2800. I will raise my stop from the 2610 level to higher levels each day to eliminate risk from this trade set up.
For the bullish pattern to remain in tact, the bulls have to defend the 2623 and 2610 levels. If we see the spx fall below 2610-I will be forced into a neutral position and wait for the next trade set up.
There is no reason to worry about where the spx will be in the next 1-4 months. The moves are to big in both directions and that is where the money is right now. Lets see if the bulls can reach some upside targets before the next top date comes into play.
Summary: The inverted head/shoulders pattern is in play and the bulls need to push the spx above the 2675/2689 resistance to trigger the pattern to the upside. Most likely, the trigger will be a massive short squeeze and why the upside targets are not crazy targets. We are in an all in-all out trading environment.
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