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. As noted weeks ago, “declines are best interpreted as the beginning of something much larger. Hard bounces can occur on any day at any hour but, “the larger pattern is not for a real durable bottom anywhere near as yet. Stay home. Rest up.” Now, 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 will be looking at timing, sentiment and technicals to try to isolate that set up in the weeks ahead. I am seeing some change in the psychology indicating that the panic is finally being discounted near term. But, it would be typical for any recovery right here to give way to another scary move back towards or to new lows. That price pattern with divergences if it fits with timing could then resolve into the first swing trade up which could encompass many points, given the volatility that is going on. We are working on that trade idea for you. Note that the market is actually simmering down.
- Near Term Diagnosis: Sentiment is 0% Bullish, AGAIN, today. 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. We are fortunate to experience such historic market behavior but it isn’t easy.
- 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.” I am now seeing that a decent first trading low may be about to be isolated in the weeks ahead. I am working with Gary on that probability.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment has now registered five 0% bullish readings. Repeat: “That behavior still remains best interpreted as a confirmed shock that the market really Changed.” I am noting though that the Panic is beginning to be discounted.
The DORSEY Interim Market Sentiment created a bullish feint of enormous proportions at the February 19 highs. Negative sentiment is overt but the panic environment is confirming of corrective behavior in alignment with the longer term timing models.
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 still do not see any swing trade low as yet. Big bounces may happen but they are not likely confirming as yet. Don’t Panic. Everybody else already did.
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: Last Thursday I put down buy/sell zones, as you can see on the chart below. The panic sell off brought the spx right into the buy zone and I am thinking we could see a test of the 3000 level. I am NOT sure if we need another test of that support, but there are reasons to be looking higher instead of lower. For now, if the bulls can get above 2500, we very well could see a massive short squeeze up to 2800-3000 in the coming days/weeks. It’s time to put your short hats aside for now-even if we head lower first.
As you can see on the 60 minute chart below, the 50 dma is resting at 2661 and should be a magnet to the upside and if we see some continued buying, 2981 is the 200 dma, which should become the secondary magnet. It may take more than a few days, but that is where I could see the spx trading before all the shorts are squeezed and sellers step in again.
The 50 dma on the 15 minute chart is right here 2495 and a break above, should see a fast move up to 2555, where MAYBE a pullback could take place. But 2674 should be tested sooner rather than later. Bullish divergences on the 60’s and 15’s are suggesting higher as well.
Summary: The panic sell off brought the spx right into my buy zone. There are bullish divergences in place on the 15’s 60’s and I am looking at yesterday’s lows as a larger wave C down. But I am also on the side of that is just a larger wave A and we are in the process or about to start a larger wave B up. Once that completes between 2800-3000, we should see a larger wave C down that tests or even breaks the 2366 lows. I am NOT that concerned over the wave structure, and concentrating more on the support/buy signals I am seeing. Be careful shorting and taking profits if still short is a very good idea. We have seen how fast they can squeeze the shorts. Looking for areas to buy I believe will pay off more than areas to short-for now.
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