MARKET ENVIRONMENT: by Woody Dorsey.
The 98% bullish sentiment reading on 9/3 indicated caution. The 3% on 9/24 happened to occur near the low. It is oddly comforting to see that Market Psychology has a way of working that we rational greedy humans can never seem to quite cognize! With 91% bullish today one wonders what they will do now. The Commander in Chief has seemingly conquered Covid! Bravo. Tonight Apprentice Pence will square off with the Kamala Impala. What will happen? Will any of it matter? Probably Not.
The Gestalt: Confusing behavior is due to continue. Buy in March.
This Week: Stocks still have an uncertain corrective vibration.
- Near Term Diagnosis: Sentiment is 91% Bullish today.
- Interim Term Diagnosis: Stocks may have a huge whipsaw both ways in the vicinity of the Vote. Trends will align negatively into Q1 of 2021.
- Long Term Diagnosis: The “Next major Low remains due in 2022.” I am looking at possibly, Q4 of 2021 which would set up for a very bullish first half of 2022.
- QUESTIONS ANYONE? Client questions: Please email any questions as they are likely to be of interest to all readers.
MARKET TIMING: Patterns preferred pressure into near here. That seems to be well over? But, tape bombs can occur at any time. Stocks continue to be difficult to trade. This is still not an easy market even though the larger vibration is becoming corrective. Near term tactical timing is tough here. There is an individual negative indicant near 10/13 so don’t get sucked into a complacent weekend.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment registered multiple 0% bullish readings near the Panic. Sentiment became the polar opposite of panic. The 98% bullish on 9/3 was a telling. The 3% on 9/24 put in a minor low. Now, sentiment has come back into mid-range. Todays 91% is cautionary. It is all so Strange.
The DORSEY Interim Market Sentiment rose to extreme vulnerability. Markets do exhibit an endless pendulum between optimism and pessimism. Interim sentiment declined quickly to low levels. Note now how it has again quickly rebounded! Anticipate more confusion and psychological drama from here.
MARKET SUMMARY: The market remains in a unique historical situation. It will all be clear as day, in hindsight, months from now. Buy in March or maybe even May. Expect Consternation and Confusion. Beware tape bombs both ways. Note that stocks just had their best correction since March but did not decline importantly. They must still be on steroids.
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 volatility has spiked up some, as traders try to figure out risk on/off for a potential stimulus package getting passed, but then also the uncertainty of the elections. The markets showed some fear when President Trump was sent to the hospital for Covid Thursday night, but then rallied back even more when news of his release over the weekend. Are they sending a cryptic message to traders about the importance of the election and market direction? Maybe, but I am on the side that the market hates uncertainty and as we get closer to the elections, the risk off trade will hit rather swiftly.
The Trump hospitalization scare was not enough for the bears to press through the important 50 dma support and buyers stepped in early on Friday to bid price well off the lows. Monday massive short squeeze brought the tape back into the resistance zone and the bulls may have ran out of shorts to squeeze price above the 3430 resistance. There are bearish divergences on all time frames and yes, if a stimulus package is passed, then we will most likely gap above the 3430 resistance. But I am looking at that as a very risky set up, as the Dems most likely will change the terms of the package if the Senate passes it. They don’t want to throw President Trump a life line at this stage of the game–JMO So we remain stuck between the 3200 low and the 3430 high range. The rising vix is suggesting traders may not be as comfortable as many think here.
There are bearish divergences in place as well as 5 waves up and resistance. If the bulls can get above the 3430 resistance, we should see 3450/3500 come into play. I will stick with, even if they do get there, the risk off trade will hit as we get closer to the elections. The bears need to get price below 3350 to get control of the tape again.
The bulls need to keep price above the 3406 level for a reaction trade up to test the 3430 resistance. The bears need to get price below 3387 and more important 3350 to get momentum going on the downside. Below 3323, we should see a reaction trade down to 3280 and then 3200.
Summary: We remain stuck within the 3200/3430 range and until that is broken, both sides will try. The 5 waves up-resistance and bearish divergences are suggesting lower first. A passing of a stimulus package (I do not think it is likely) will almost assure a push above 3430. I do NOT believe it will last long if that does take place, as the uncertainty of the elections will have the risk off trade in high gear. G
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