MARKET COMMENTS by Woody Dorsey: The 2% Bullish on 4/20 resolved with robust Upside which provided Breakouts to new price Highs which I had allowed. We avoided all of that presumable excitement by “Maintaining a Neutral view.” Now, Yesterday’s Key Reversal is of note. I always respect Reversals. It pays to wait for Mr. Market to say what is on his Mind! For me, the next dominant indicant remains: The “Trading Low due 5/22-25.” Several related markets are also offering indications of near term changes as I will detail. As always, try to maintain a flexible Market Mind. Big Pictures are best used for Billboards. For now, focus on the next few weeks. Beware of the Greek meme. Small islands may offer unexpected events.
As I had noted, the “correction from 3/23 may have ended on 4/3. If so, that supports that the current slow motion breakout was actually a maturing leg up.” So what? You may say. I focus on it because it is critical to trying to understand the price structure and more importantly the maturity of trend. If, prices have actually been rallying for 3 weeks, the Uptrade is “older” than if it just started on 4/17. Thus, Recent Strength is more mature than has been Recognized
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MARKET ENERGY: Market Energy is different than Market Timing. There is still not any very cogent Energy due this week. That does not mean that something big could happen, it is just not showing up on the Energy scan. Yes, there is the FOMC and GDP to provide media fodder but they may not be definitive. There is more defined Energy due nearer to Month End and into 5/4ish. I repeat, there is eventual Negative Energy into 5/22-25ish.
MARKET TIMING: There is still, “some indication for potential strength into 5/4ish. Stocks are in some sort of Tactical Topping pattern.” Now, 5/15 sets up a Negative day and may not be any sort of High but may be a defined tactical breakdown which triggers more overt weakness into the profiled Low due 5/22-25. It is of note that 5/15 and 5/22 are Fridays. The 4/17 mini plunge was also a Friday! Traders may want to or have to “get out” before the weekend if Geopoliticals or Greek issues are feared to have, “Weekend Risk.” Watch out for weekends! If the market does hang around here or starts to “look” fragile, the “Sell in May” trope may become actualized! Indeed, given the profile, we expect that. It would add to the fuel for a durable tactical trade.
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MARKET “TELLS”: The DAX and Bunds have been somewhat equivocal of late. With U.S. Indices on the brink of a Tactical correction, I also have a profile for new Dollar strength. This may reinforce the equity outlook. Moreover, it augurs that the Greek meme may become viral again. Note too that I had deemed Biotech as a potential emerging mirror for equity Risk appetite. It had a 9 day plunge into 4/1, then rallied for 16 trading days but could not make a new high. That is telling. Thus, yesterday’s overt plunge should be interpreted as a signal of more weakness to come. It is also of note that AAPL was so adored and is now reversing. The Apple never falls far from the Tree! It tells of the broad market.
No one knows what will happen in Greece but if it becomes a well-advertised viral topic once again, it would fit with the emerging Negative Market Energy over the next 3 weeks. It may also dovetail with another potential upside episode in Treasuries. Social Unrest is never a Positive for Financial Culture! Thus there is an emerging cohesion, from a tactical perspective. Traders may want to watch these related market factors as they gauge their positioning.
SENTIMENT INTERPRETATION: The DORSEY Market Sentiment extremes can be used to identify Key Support and Resistance. Thus, 2116-2118 was Key Resistance. That was exceeded. What does that mean? It means that there are no longer any Shorts! 2040-2045 remains key Support. Again, Traders can use the Sentiment and Price levels in any way they choose in alignment with their Trading preferences. Now, the 2% Bullish on 4/20 offers a cogent Support near 2072ish. If that prior price Low and Low sentiment day is exceeded, it would be an important indicant of more serious weakness. Now that stocks have overtly reversed, near term, the price highs @ 2126ish become cogent Resistance.
An “Invisible” price extreme Low occurred on 4/3, and was end of the Correction from 3/23. If so, as I allowed, “this Rally is more mature than anyone realizes and may end with a whimper rather than with a dynamic breakout.” Perhaps Monday’s trade to 2126 was that upside whimper? For me, the fact that the upside has been in an uptrend for 18 trading days is important. It would match the Duration Symmetry of the rally from 2/2. This is an aspect of Trend Duration Analysis which I detail in my book “Behavioral Trading.” Few people have read it and even fewer have grasped the significance of studying price trends from the perspective of, “how long they last.” The point is that the media and the investors who believe in them, require a certain amount of time to become hypnotized into a trend!
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INTERMEDIATE TERM: The DORSEY Market Sentiment has been “NEUTRAL” which allowed for more sideways trade. That occurred but, as can be seen on the chart, Sentiment is pushing up towards the top of its range. But it will not offer a Sell indication until short term Sentiment turns very negative. All in all, it aligns with a Topping but not definitively “Topped” market.
MARKET SUMMARY: Stocks may have exhausted their upside potential for now. Preferred Profile Indications are for a developing or, developed market High. There is still some time for that to be fleshed out but, no matter what, tactical weakness will be developing. The key tell for me will be how the market eventually trades down into 5/22ish.
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TECHNICAL VIEW by Gary Dean: Every Tom Dick and Harry were talking about the “triangle breakout” and where the SPX may top-which is nowhere near the levels we were at. The triangle pattern that had the look and feel of a breakout-would have a mathematical target of 2219. Now the SPX is trading inside the triangle, which throws some questions as to whether or not that is the pattern. Woody mentioned it last week “what is it isn’t a triangle”?
Now there is yet another pattern that could be shaping-a very large bear flag. Just like the triangle pattern, don’t convince yourself that is happening, just take note of it. The bottom of the bear flag (which is really and up-trending channel) is right around the 2085 level and as Woody mentioned above-important sentiment support is at 2072. So that area between 2085-2072 is something to pay attention to-closely!
Resistance Levels-2126/2138
Support Levels: 2085/2072
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