MARKET ENVIRONMENT: by Woody Dorsey.
Stocks continue their nominal break out. The interim profile is friendly into at least mid-January. There is also trading upside into 11/25ish. Seasonal patterns are also positive. Thus there is an unusual confluence of patterns which does allow for continuation.
- Near Term Diagnosis: Sentiment is 89% Bullish.
- Interim Term Diagnosis: The Interim Trend is up into January early next year.
- Long Term Diagnosis: The next major Low is due in 2022. Obviously a defined high or distribution to has not yet occurred.
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MARKET TIMING: There is still no cogent very short term pattern save that the next trading high is due 11/25ish. This also fits with the obvious seasonal’s. Tape Bombs will occur for sure but they may not alter anything importantly during this particular phase.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment behavior continues to “tell” that the interim trend is indeed up. In this configuration, individual days of high sentiment ae occurring without being “tops” as yet.
The DORSEY Interim Market Sentiment has now clearly climbed back to relatively optimistic levels which are nominally cautionary but can also, “be understood as symptomatic of a slow motion breakout.” Further extremes and divergences are likely to form before a more defined sentiment top is in place.
MARKET SUMMARY: Stocks remain in breakout mode. The Interim trend is up into January. The trading trend is up into 11/25ish. Obviously the market cannot go straight up but that does not mean there will be easy short games to play.
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 2 gap up opens produced 2 “gap omen” trade set ups. For anyone who doesn’t know about this trade set up, it is when the spx gaps to new rally highs but the more importantly, is when it gaps to new all time highs, like we just saw. It is a short term set up and the pattern calls for the 2 gaps to get filled, which would be 3066 target 1 and 3038 target 2. Typically these gaps are filled within 7 days, but sometimes does take a little longer. We know there are divergences in place on all time frames, but until the bears can stop this moving average buy program that has been in place for quite some time, the bulls will remain in control. What we also know from history, when we get these none stop gap opens, when the tape does turn, it typically wipes out a lot of points in a very fast time period. I still believe a test of 2986/2900 is in the cards.
There are no bearish divergences on the NYAD, so even if we get the pullback the technicals are looking for, this most likely will not be the top. 3026-3020 and 300 are the support zones the bears need to press through to get any momentum going.
The 50 dma on the daily charts is at 2986 and the 200 dma is at 2900. I do believe we will see a test of one of those in the coming days/weeks.
Even though we do not have bearish divergences on the NYAD, other internals are throwing up warning flags as well for the bulls. Stocks trading above their 50 dma is diverging and it is telling us less and less stocks are bringing the spx higher. The reason it is a red flag, when these select few stocks take a breather, it takes the entire index down with it. Below this chart is the McClellan Summation Index which is diverging as well. These are not sell now internal indicators, just red flags for more upside.
Summary: The bulls continue the gap up to new highs game plan, but there are divergences everywhere and some of the internals are waving red flags about this rally as well. The “Gap Omen” trade set up is in play and the short term targets are 3066 and 3038, which I do believe those gaps will get filled. A test of the daily 50 dma is very likely as well, which is resting at 2986. If the bears can get below that ma, then we should see 2900. But we need to see the bears get price back below 3020 to get any momentum on the downside.
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