MARKET ENVIRONMENT: by Woody Dorsey.
Profile remains for Bounce potential into 11/27-ish followed by overt weakness into mid-December. No change: “The 10/29 panic low is not inviolate by any means. From the December low there is a better profile for strength into 1/22.” It does look like, as advised, the recent bounce was some sort of wave 4. That fits the profile for down again into December.
- Near Term Diagnosis: Sentiment is 17% Bullish today. Bounces from 1% were normal but had no durability. That infers the wave 4 idea is operative.
- Interim Term Diagnosis: The 10/29 low was compelling but is not inviolate. There is risk of another tactical low near Mid-December which means again, “the interim trend is still lower.”
- Long Term Diagnosis: Repeat: “Equities have likely registered an important Cycle High. The next major Low is due in 2022.”
QUESTIONS ANYONE? “Hello, Woody, I am wondering why your timing model did not call the recent big 600-point drop in the stock market on Mon Nov 12? I know that you had said in your prior commentaries that there would be “chop” as we head up after the elections into the next top date around the end of November, but the huge drop like the one we saw Mon Nov 12 is more than just “chop”. If I sound frustrated, perhaps I am, but when I signed up this summer, paying good money for the premium member service, my expectation was that you would call such major moves in the market. Thank you,”
Thank you for your question. There is no timing model or system anywhere… on this earth. There is only insight based on experience. The markets indeed all of life are a mine field. Expect errors everywhere. I remember being quite wrong one day in 1938. I hope that never happens again. The sentiment is the key to error alerts. The 91% on 11/8 was a warning of near term downside. The drop in 11/12 was not a major move as you note you were looking for. The major move is lower into 2022. The swing move was higher from the 10/29 lows. The pattern is down into mid-December and up into 1/22/19. Yes, the market is very frustrating. But, Sentiment is the key to the market. Errors are reality. That will never change.
Please email any questions as they are likely to be of interest to all readers and may inspire me to provide more and better answers to the mysteries of the market than I might offer just on my own. firstname.lastname@example.org
MARKET TIMING: Upside tries have been due into 11/27ish. Downside remains due into 12/8 & 12/20. Upside is then due into 1/22/19. That is the generic timing pattern. As noted, the behavior of the last weeks allows that this period of potential strength into 11/27ish may be part of a wave 4. The tactical trend has been up from the 10//29 low however the 2 failures near 2820ish on defined daily sentiment spikes over 90% bullish. Thus, “the interim trend is still corrective. The December declines, however they manifest, is better profiled for a rally into 1/22/19.” Stocks are running out of time to demonstrate any durable upside but this market is moving quickly both ways and next week is friendly.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment remains volatile. I said “The bounce into 10/17 on 93% Bullish identifies the 2820 level as Key Resistance.” That rally generated a 91% Bullish which was harshly rejected. The subsequent 1% Bullish reading did not resolve into any real upside.
The DORSEY Intermediate Market Sentiment registered a panic extreme near the area of the February lows. But that low does not look anything like this one. Repeat: “The interim trend may still be down so optimism is unwarranted.”
MARKET SUMMARY: The profiled recovery “may persist by fits and starts into 11/27-ish.” That will be followed by a decline into Mid December followed by a rally into 1/22ish. It is a traders market. Don’t believe anything except that the Market has Changed. The December low may be the bright spot for bulls…until then…
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 Bulls have had some trouble finding their footing for the past week. But the preferred pattern remains that we are making wave B down and wave C up is on deck (maybe the low was hit today) Once the is in place, we should see the spx rally up to the 2880-ish area (Open gap Target 1) I am not 100% sure it will make it there, but that is my first target and have no problems changing that as we approach the next top date. The inverted head/shoulders pattern is still in play and if that pattern was going to follow the script, the target would be above 3000. I don’t see that playing out and it is just a target. Bullish divergences are on all charts and we could/should rally anytime.
Support has turned into resistance and now the bulls need to get above the 2723, which is the first sign they may try for the 2750 bull/bear line. Above 2750-2755, then I see 2800+ coming into play. But until the bulls can get above the bull/bear zone, the bears remain in control.
The daily chart shows the inverted head/shoulders I was talking about. I believe we completed wave B down and wave C should start or started at today’s lows.
Summary: The big reversal today is the exact opposite of the reversals w have seen over the past week. UP/Down has been what the general public have become accustomed to and today we saw a Down/Up pattern. Once we get above 2723, I would feel more comfortable calling the lows in. But my gut is saying there are in place and wave C up in under way.
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