MARKET ENVIRONMENT: by Woody Dorsey.
Market participants are still trying to figure out what is happening. They can’t. Real Uncertainty cannot be understood by the rational mind. “Declines are best interpreted as the beginning of something much larger. I am looking at a potential price pattern for more of a swing trade recovery within this dominant trend to the downside. Gary and I are looking at timing, sentiment and technical indicants to try to isolate that. I am seeing some change in market psychology indicating that the panic may initially be being discounted now or very soon. It might be typical for a minor recovery to give way to another scary move back down. That kind of price pattern might fit with the timing of the first swing trade up which could encompass many S&P points. We are working on that trade idea for you. It does look like something like a two day pop right now.
- Near Term Diagnosis: Sentiment is 2% Bullish. The purest Panic may now have occurred. But the price pattern still allows for more bouts of weakness before a swing trade up can be confirmed.
- Interim Term Diagnosis: The Interim Trend profile is generically down into early Fall. Stocks will bottom well before the election. There will be several swing trades before that.
- Long Term Diagnosis: The “Next major Low has been due in 2022.” I am now looking at Q4 of 2021. That sets up for a bullish first half of 2022. Yay.
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MARKET TIMING: Repeat: “An important interim high has been registered. It is not wise to get too cute on any short-term ideas. Anything can happen. There are a few more negative episodes in store.” Indeed. I am continuing to stalk an initial swing low. I am working with Gary on that probability. We will let you know.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment registered five 0% bullish readings. Sentient is 2% today. Overall sentiment behavior still remains best interpreted as a confirmed shock that the market “really Changed.” I am seeing that the Panic may be beginning to be discounted.
The DORSEY Interim Market Sentiment created a bullish feint of enormous proportions at the February 19 highs. This panic environment is confirming of overall corrective behavior. I am showing today a much longer sentiment chart. Note the divergence, the acceleration and the degree of decline.
MARKET SUMMARY: An Important High came due. Still, “the next defined interim low is due nearer September. My view has been and remains: “The market really is in trouble and it will not be over soon. Trade accordingly.” I am looking for a potential swing trade low to set up. Big bounces may happen but they are not likely confirming as yet. Don’t Panic. Everybody else already did that. Still this overall market and cultural correction has a long way to do.
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: Even with the new lows and halted markets each day, the rate of change on the downside is fading. That doesn’t mean the lows are in, maybe they are, but more of a you have to be on your toes if actively shorting this market. At this stage of the decline, I see more risk shorting right now than buying. Any bounces will be looked at as a shorting opportunity and as we should have learned, when a trade becomes a no brain-er, that is usually when we see a massive reversal. For this particular preferred pattern, I am looking for a “swing trade reversal” that could last 5-10 days or more, but gobble up a lot of the shorts gains quickly. Once/if/when the lows are in place and the rally last more than a few hours, I will be eyeing the 2800-3000 level on the spx as a possible target. But let’s cross that bridge once we are sure a swing trading low is in place. If we need lower, 2200/2050 is the next important support levels to watch.
There are bullish divergences on the 60 minute charts and the bulls need to get above 2560 to get themselves out of the ICU. Until then, the bears will continue to try and press lower. Careful on the short side-we could see a 100-200 point bounce within hours at any time here.
I am also seeing buy signals on the 15 minute charts as well. This is suggesting the bears are exhausted here. 2466/2560 are the important resistance levels to watch here.
Summary: The spx has pretty much been slaughtered for the past 3 weeks. We are at support levels I was expecting to see in September, but fear is much stronger than greed and we are here in just 3 weeks. But there are many technical reasons to be looking for a low here-at least for a swing trade. Once the low is in place (It might be already) I expect a choppy, but strong move up to the 2800-3000 level. The bulls need to keep price above 2300 or they risk a test of the 2200 support. The bears need to keep price below 2560, or they risk a short squeeze up to 2800-3000. I like the upside here. G
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