MARKET ENVIRONMENT: by Woody Dorsey.
Maybe nobody really knows what is going on after all! Stocks were in some kind of weird slow motion break out until they weren’t. Reality is refreshing! Expect excitement for the whole month. Don’t be seduced by these Recovery pops.
- Near Term Diagnosis: Sentiment is 2% Bullish today.
- Interim Term Diagnosis: The Interim Trend has finally reversed. The rebound from the 6/5 Low had been maturing and dangerously diverging. Lower into the end of August and into October.
- Long Term Diagnosis: The next major Low is due in 2022. Upside is limited, Downside is Likely.
- QUESTIONS ANYONE? Woody, What are thoughts on Bonds and interest rates in the near term? Answer: Rates are on an amoral bender. I trust them not. But I allow more crazy stuff. Sure they are begging to be sold big time but there is not an absolute profile for that. Capital should have a cost. Rates will Rise in time, for sure.
- Question 2: Thanks for the update! What do you mean by crypto running up hard “out of base”? Answer: Crypto rallied hard on the panic yesterday and last night. The base I am referring to was from 7/17-7/29.
- Please email any questions as they are likely to be of interest to all readers to firstname.lastname@example.org
MARKET TIMING: “Downside potential was open, as allowed. There was a profile for real downside in the Fall.” It started in a hurry and with little warning. There is daily timing for a low last week of August. Weekly profiles allow for another and more terminal interim low into October. Near term, after this lovely first break, big volatility can continue. It would actually be great to have some hard pops even into 8/12ish. Enjoy it.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment registered very very high sentiment. Now, “new compelling negative stories are being recognized but it may only be the beginning.” The 2% Bullish ratifies a real change in the market dynamics but does not yet signal anything more than a short term contrarian low.
The DORSEY Interim Market Sentiment was notably diverging. I said: “This sentiment pattern remains a warning sign of coming vulnerability.” We all knew that investors had become too bullish. They are still very far from becoming too bearish.
MARKET SUMMARY: This is a notable break with wonderful volatility. August breaks can be brutal. Prefer pops into next week but best nominal trading low is due nearer the end of August. Some media sources opined that, “Dark Psychic Forces” may be operative. They probably have been for some time.
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: I often find it amazing how the markets/media can hypnotize traders into believing you are missing out on the next 20%-30%-50% rally and you must get in now, when in reality, we have gone nowhere in the past 1 1/2 years. Of course it always feels like the bulls are on the right side, being the rallies last for months and the bears simply knock out those months of gains in days, then it is back to crawling back up again. If you bought in January 2018, you are -20 points on the spx, but the cheerleaders would have you thinking you made 30%, being they take their numbers from the exact lows. The point I am making here is that we ARE IN A TRADING ENVIRONMENT!! Perma bulls/bears have gone nowhere.
I am going to start off the charts with the weekly spx chart, being there is a megaphone top pattern is standing out like a sore thumb. It is in the early stages and I have no idea if it plays out or not, but the pattern target is looking below the 2300 lows made in December 2018. The wave structure fits as well as Woody’s 2022 long term low period, but as we have seen over and over, the puppet masters will do everything in their power to try and keep things moving higher. Buyers did step in at the weekly 50 dma and if the bulls lose that line, I see a very fast move taking the spx to the 2722 lows, which I am looking at as the potential crash like move lower, if that gets taken out. It is a longer term chart, so this is NOT “it is happening now” commentary, just what could play out if the pattern is in play.
The 60 minute chart is showing the resistance zones that the bulls need to push through to get momentum on there side after yesterday’s slaughter. If the bulls can push through 2870, the reaction trade should be up to the 2892 line. The 2912 is the bull/bear line (that was the sentiment extreme that had us heading lower before the fed stepped in) which was resistance-then support when we went above and now resistance again. If the bears are going to continue to push lower, I expect them to fight for that line. Above 2950, the bulls won and we would most likely test or break the old highs.
There is no bearish divergence on the NYAD daily, which has me leaving the door open that we have not seen the highs (if history is our guide) That doesn’t mean we can’t see a 200-250 point drop, but the larger declining episodes have always come with a divergence on the daily NYAD. The wedge was broke to the downside and I still believe we will test the 2720 lows before we see the bulls try higher.
Summary: The bulls stepped in at the 50 dma on the weekly charts. That is what the bears must break for a reaction trade down to the 2720 lows or even 2500, which is the 200 dma on the weekly charts. There are gaps above and the lack of NYAD divergences at the highs, has me a little cautious saying we have seen the top for year. I still see 2720-ish coming into play, but remember what i said in the beginning of this report-WE ARE IN A TRADING ENVIRONMENT!! G-
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