MARKET ENVIRONMENT: by Woody Dorsey.
No change: “Markets are messy and may stay that way.” The weird Bart confirmation “Crazytown” momentum is still getting weirder. It is refreshing to have some big market moves.
Positions & Perceptions: The “Pain Trade” has been for higher prices in the absence of any Credible Risk. It really was “2 Good 2 B True!” Our Buffoon in Chief aka, “Humpty Trumpty” has been way “Off the Wall” for some time. Markets may finally be reacting to those Fools on the Hill. The big background check may have only been a quick peek at the past? It does seem confirmed that: Bart Barfs a lot. So what! Well, if #White Lies Matter, it may be telling. All political operatives become professional liars. Maybe Bart is a poor Judge of his own character. But, like Bart, Jerome Powell went to Georgetown Prep where he may have barfed as well. But he, unlike the others, is transparent and sticks to script. He told us Rates would be rising and will continue to rise. I told you that 5 years ago and they will keep rising for decades. Maybe that finally matters to equities.
I repeat from Tuesday: “There is still a lack of any sort of typical trading rhythm for the market but that does not mean it cannot become virulent.” There is still a lack of any trading rhythm but it has become virulent.
- Near Term Diagnosis: Sentiment is 61% Bullish today. The very overt downside reversal from S&P 2940 was credible and is now being validated. This sort of technical torque is usually very significant but also continues to be viral if it does indeed signal a durable move.
- Interim Term Diagnosis: The Interim profile is congestive.
- Long Term Diagnosis: Equities are in some sort of topping process. That is not relevant to trading decisions. I do foresee a Low due in 2022. But that does not mean the market is going to go down hard near here.
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MARKET TIMING: As noted, the next turning point price pattern is near 10/10-ish. I still foresee a notable relief rally Dates are for members only. That may be followed by more weakness than anyone expects into Dates are for members only. Still, in this confusing chaos there is not in my work a really defined timing code. It is what it is.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment generated 98% on 9/21. That euphoria is still the extreme. It is of note that the 98% did tag the High close for this move. It is strange how telling these numbers are! Let’s see if we can get a low number tomorrow and what the market does with that. Lower sentiment and lower prices can work lower if and when a new negative trading trend in unfolding.
The DORSEY Intermediate Market Sentiment continues to be in an inconclusive range but it has been diverging notably which is a symptom that investors are not convinced of the recent upside. Maybe it was seen as, too good to be true! Sentiment is vulnerable.
MARKET SUMMARY: Stocks remain, “congested albeit chaotic.” That is why I warned: “It is wise to become aggressively agnostic in the near term.” Now, with the recent new highs, overt reversal and downside follow through today, a real correction may finally be here. Any trading initiations can be entered against the highs of this week. Tomorrow will likely be a big day. Bart may get his shoe in vote after all the drama, but stocks may not throw him any party. It may barf again.
TECHNICAL VIEW by Gary Dean: The internals were warning about the long side and as much as the bears have had a hard time gaining any momentum to the downside, the bulls have had a hard time gaining momentum to the upside. We have a double top pattern in place and now the spx is trading at the range lows. So now we have to see if the bears can push the spx below the 2900 level, which should cause a reaction trade down to the 2886 support. They have plenty of fuel in the tank to take the spx lower, lets see if they will use it. The bulls need to get the spx above 2921 to get out of short term trouble.
If the bears can push the spx below 2903, we should see 2886. If the bulls can push the spx above 2921, we should test 2932/2937. I think 2886 will come into play before higher, but lets wait and see if they can get below and stay below 2900 first.
The new set of highs has brought about a new set of bearish divergences on the daily chart. As you can see, the bearish wedge is still in place, even with these new highs. 2975 is the 50 dma and it may be a magnet is the bears can push below the 2900 level. safe.
Summary: The internals were warning that the bulls may have a hard time breaking out. Today we are seeing the bears press the spx to the bottom of the range 2903. If they can push below, 2885/2875 should come into play. The bulls need to get the spx back above 2921 to get out of short term trouble. Lower makes more sense.
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