MARKET ENVIRONMENT: by Woody Dorsey.
Investors remain hypnotized by this unusually friendly market. The “Pain Trade” is still higher and the “Golden Halo” may continue even into June. It is a “Time of Churning.” Traders don’t really like it but it was not unexpected. Recognize the value in knowing that the interim churning was due. Keep saving your psychological and physical capital. There are some negative very short term indicants from 4/24 to 4/29. That argues for some negative changes beginning form very near to hear. So, do not buy here and do not become complacent.
- Near Term Diagnosis: Sentiment is 68% Bullish today.
- Interim Term Diagnosis: The Interim Trend remains positive but momentum continues to wane and divergences continue to develop. A “Kill Zone,” or overt downside setup, may not arrive until June. This is a trying time for market realists but it could continue as advised.
- Long Term Diagnosis: The next major Low is due in 2022.
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MARKET TIMING: The Interim Trend is still positive but maturing. The interim profile has a nominal topping time zone lasting even into early June. It makes the most market sense to have some setbacks and hesitations over the next few weeks to set up for a final upside try. Near term timing remains inconclusive and sloppy. But, as noted, there is the potential for negative indicants into 4/29ish.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment has continued to be generically optimistic albeit diverging. Thus, Investor Psychology becomes more vulnerable but there is no indication of any major new negative, as yet.
The DORSEY Interim Market Sentiment continues its extreme divergence. The Bulls remain very conceptually comfortable.
MARKET SUMMARY: Stocks are vulnerable but have not been able to initiate any decent downside. The interim trend is still positive as expected. Thus, there is still no urgency to get overly excited about “Picking a Big Top.” Not yet. This is an unusually benign market episode.
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: The spx has been in a choppy consolidation phase over the past week. On 04/16 we saw a gap up that to the spx some 8 points above the rally highs, only to drop 16 points the next day. Then we saw a 2 point push above the rally highs only to see a 20 point drop that day. Today we are 2 points above the previous rally highs and will we see a 20 point or more drop tomorrow? Whatever the market decides to do between now and weeks end, really doesn’t change things from a technical view. The wave structure is mature, there are bearish divergences and the pattern is pointing lower.
But as we have seen over the past month, technicals are not the only driving force behind these moves. But we do have some short term negative expectations as Woody mentioned above, so maybe we do see a quick nail biter to the downside? We will find out soon enough. But the target I have had in place since the 2356 lows, was hit today-and that was closing the 2920 gap.
The short term support level for the bears to break through is 2910 and then 2900. A break of 2910 would be the earliest clue we may be starting a push lower. The 2895-2890 support zone is important for the bears to get through, which should cause a reaction trade down to the 2860 bull/bear line. Below that, we could see a downside move pick up steam fast, but until that level is broken, the bulls will hang around.
The only thing changing on the daily chart is the bearish wedge target, which continues lower each day if it was to play out. Below is the bearish wedge I am referring to and ass you can see, it has a target between 2725/2700. Also notice that I changed the wave structure to fit the current moves. This is one of the reasons I have said, even if we push higher, it doesn’t make the long side safe. We made new highs and I am now labeling this as the wave 5. That is suggesting that once it completes (may not be the next drop) but when it does, a 50%-78% retracement of the rally from December would be on deck.
Summary: The 2920 gap has been filled and that has come with extended bearish divergences and a very mature wave structure. We are hear with no gas in the tank and now it is a matter of waiting for the move to completely run out of gas. Maybe it is right here, maybe they have some more points left. But even with this new set of rally highs, the long side is not safe here.
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