Summary of this report–Market Bias: Bullish from 05/03, looking for a rally into 05/25-06/05-ish-ish. The SPX rallied almost 200 points and topped on 06/12 and dropped almost 100 points.
MARKET ENVIRONMENT: by Woody Dorsey.
There was a micro tell from the low on 5/3 was for some persistent trending strength into this week. Thus this trade surprised the majority who were, into “believing” the prior bearish range behavior. Now however, high Sentiment, maturing timing protocols and an upcoming Holiday weekend all argue for upside limitations. It is a trading market and may be on the brink of more volatility.
- Near Term Diagnosis: Sentiment is 94% Bullish today. Yesterday’s rally was clearly exuberant.
- Interim Term Diagnosis: As I noted: “The Range was importantly tested on the downside. Thus this recovery probably remains, “due to probe the upside of the Range.”
- Long Term Diagnosis: My experience is that, “Big Picture” opinions are misleading and may be harmful for your trading psyche. Big ideas are popular because few observers realize that there really are cogent shorter term indicants available. The laziest aspect of investing is thinking of big picture bearish or bullish ideas! Still, there is a latent profile for a further Summer topping process high which could become a frustrating and slow moving phenomenon.
- QUESTIONS ANYONE? “To what extent does price feed into your sentiment prediction? For instance, because of the large run-up, I suspect the market is “too long” and needs to adjust that. So if you timing is suggesting moderately positive, but the market is too long from a quick run up which seems to have taken out a lot of shorts, price can still come back to take account of that adjustment? I note for instance that currently we are below Friday’s close hence down for the week. I suspect there still might be inventory adjustment to go before it can push up much further even though the sentiment is positive. Just a thought.” (5/17)Thank you. Just to clarify, I do not do “sentiment prediction” per se. The emotional brain is clearly reflexive with price or, technical which are the province of the original brain function. Yes, the market may have been “too long” (your description) but my profile was for surprising tactical strength and indeed it was not what most traders were expecting. Now, with 94% bullish today (5/22) and in the week for a potential high, the market looks ready to at least congest and is indeed due to set up a much better, “long cleansing” episode in coming weeks.
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. info@sentimenttiming.com
MARKET TIMING: The profile suggested an “early May” Low followed by strength into “5/25ish and perhaps even 6/5ish.” It has worked out like that. That is why I deduced that last weeks’ setback was only a pullback. However a complex congestion may now be due before defined downside. The 5/3 low was a dominant micro tell. Now, with 94% today and this week’s thrust to new highs, the first part of that upside is clearly tiring. Even though there is more potential time, it is not any license to become bullish. That market needs more time to flesh out this first high. Now, a minor Kill Zone may occur after this. That should really be fun but could yet be followed by another run up to form an even better interim high.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment registered a 12% Bullish at the key shake out low on 5/3. Now, with a 94% today, there is finally an overt daily sentiment reading! This is cautionary but stocks may just meander for the rest of this week.
The DORSEY Intermediate Market Sentiment has been in a nominal recovery. Base on this, I have allowed for normal setbacks and backing and filling. As you can see in the graph, this measure of Sentiment is now near typical topping measures. Thus, it makes sense for this first market rally to be ending near here.
MARKET SUMMARY: The Market has been in a decent recovery from the expected early May low. The nominal timing still allows upside into 5/25ish. Once this trading high is fleshed out, the best trading decline in some time may set up in June. Still, the market could confuse and frustrate with further grudgingly upside into Mid-Summer before an actionable interim high occurs. Never Believe in Stocks. Thank you, Mr. Market for all these wonderful twists and turns which you provide.
TECHNICAL VIEW by Gary Dean: The SPX ran into resistance and the bulls didn’t have enough juice to push through it yesterday. It does have a tired look to it, but momentum is not overdone here. So maybe we see just a sideways breather or maybe they need to test some support below. If no rest is needed and the bulls can push above the 2741 resistance, then we should see 2761 and then 2800 next.
Support levels to watch for on the 15 minute charts: 2720-2714 and then 2700. If the bears can push the spx below the 2700 support, then 2683 should become a magnet and what I would think, a great buying opportunity.If that fails to hold, then I would start to question my 2800+ targets.
Nothing has changed on the longer term wave structure. I can give reasons for new highs or this just being some type of wave B up and wave C down is pending. No use worrying about this longer term wave structure.
Summary: There is a 50/50 chance we see some backing and filling to test some support levels below. The risk, the bulls just keep on running higher without any pull back. I am open minded with whatever the choose to do. If lower, I will look to buy near support. If higher, I will wait for another buy trigger to get long my 2nd 1/2 of the position.
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