MARKET ENVIRONMENT: by Woody Dorsey.
Stocks are bouncing on the favorable indicants which I had forecast for this week. Some sort of tactical topping is due. The next Code calls for another decline towards month end.
- Near Term Diagnosis: Sentiment is 96% Bullish today. This is very cautionary but not a Sell Signal per se. There may still be a bit more upside time.
- Interim Term Diagnosis: Key support remains near 2600. On the upside, indicants suggested that the mid-June High(2792) was an important inflection point. Now, the recent strength infers that the Interim trend has not turned as yet. An Interim market change will occur when a trading decline breaks below prior lows.
- Long Term Diagnosis: Stocks are Topping.
- QUESTIONS ANYONE? No client questions today
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MARKET TIMING: There was a “specific negative Energy (Prana)” due in late June. The timing profile was for: “Recovery into 7/9-10.” Positive energy was due here. I allowed that may stretch into 7/11ish. So, upside time is running out but has no reversal as yet. There is a new downside Code due after that into month end.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment generated back to back, 1% and 3% Bullish sentiment readings on 6/26-6/28 which was coincident with the expected trading low. Sentiment Bounces have rebounded from there and have just now generated overt extremes and 96% Bullish on 7/10. I had surmised it would be great to “register one fat high sentiment.” Here it is. It suggests taking profits or tightening stops and as an alert that a reversal could occur. With this sort of sentiment it is actually typical for there to be some momentum follow through.
The DORSEY Intermediate Market Sentiment bottomed in alignment with the preferred timing profile and has now bounced back robustly but it can still improve further before achieving typical overbought levels.
MARKET SUMMARY: The Market Code called for a rally into 7/9-11. But, after this concludes, another decline is due into month end near next FOMC meeting due 7/31. Thank you, Mr. Market…for all the twists and turns. You are the trader’s best friend. Don’t believe in what everyone thinks about the Market.
TECHNICAL VIEW by Gary Dean: The SPX has now reached my target 3 2791 and the inverted head/shoulder pattern played out as expected. I don’t see any signs that this is the top YET. We are entering Woody’s topping time period and sentiment is ticking extreme bullish readings over the past couple of days. So time and sentiment are in line for a top, now we need to see price react to this topping process. We know very well that the bulls love to over stay their welcome, so wait for price to tell us they are done and we made a top.
The SPX is NOT showing bearish divergences on the hourly chart below and why I think we see a short term top today or tomorrow and then they try for a new high or at the least, test the highs we leave here. Momentum is extremely overbought, but that is not a reason to go short yet. The bulls are trying to break through the 2791 resistance and if they do, then 2802 and then 2813 may come into play. 2813 is an open gap and a target I will be watching.
The 15 minute momentum is overbought and showing some bearish divergences as well. So again, that is hinting that we should see some selling at some point up here, but the 60 minute chart is suggesting it will be just a dip and not something to short. 2783-2775 and 2765 are the support levels the bears must get through.
Everyone that has been worrying about whether the spx is heading to 3000 or 1000 has missed some great trades. If we continue higher, then we will be in a wave 5 up. If we head lower, we are in some type of wave C down. Does it really matter? Trade the short term swings and forget about long term views for now.
Summary: The inverted head and shoulders played out perfectly. The spx is in a resistance zone and I would expect to see some sellers up here. But the lack of bearish divergences on the 60 minute charts, has me thinking the pullback will be just that, a pullback. Ride the long side with stops or look to take profits. They next trade is lower, from where is the big question. I think the 2813 gap will get filled, but not certain of that. Wait for price to react to the topping process. Even if we head down hard today/tomorrow, the bulls will most likely test or even slightly break the highs up here before we head lower. G
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