MARKET ENVIRONMENT: by Woody Dorsey.
I repeat: “The BitCoin phenomenon is a kind of “Permissioning Parallelism” for the euphoria in Stocks You don’t have to understand the Stock Market! You just buy it. Because it goes up! This phenomenon is a sign that we are in the late stages of this bull market. This remains the rarest of rare market environments. So far, the Trump Tax passage was typically synchronistic with the highest prices of the year. Better two way trading volatility is now likely.
- Near Term Diagnosis: Sentiment is 19% Bullish today based on the weak close at year end. That was not any meaningful low sentiment and stocks have snapped back but are still constrained.
- Interim Term Diagnosis: An interim high can occur at any time and I actually now prefer that it is in a corrective pattern is unfolding before another run up into Q2. It makes market sense for a larger degree of Time correction than we have seen for a while but that does not necessarily promise a severe Price
- Long Term Diagnosis: The rare “Lapdance of Liquidity” engineered by Global Central Bankers in 2009 is coming to a conclusion but the psychological momentum may last even into mid-2018.
- QUESTIONS ANYONE? Client Questions: No Client Questions Today. 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. [email protected]
MARKET TIMING: There has been an interim trading low due Dates are for members only. Yes, this could become another “Buy the Dip,” Trip. Stocks can have some surprising setbacks at any time, near term. There is a timing cluster due near 1/8-9 which should provide very big volatility. So be careful. If there should be a rise into there, a sharp correction may occur.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment is coming off from of extraordinarily High Sentiment. I had warned that such high sentiment over the last 2 months was not a sell signal. The recent 94% and 95% bullish sentiments did tag a tactical high for now. Todays 19% bullish is not clearly negative enough to confirm a trading turn as yet. Again, very low sentiment on new negative news is required to confirm a larger tactical turn.
The DORSEY Intermediate Market Sentiment created extreme divergences but stocks have not overtly responded to that. The intermediate term sentiment metric is still not offering any conclusive price interpretations. New negative sentiment is required to change the existing bullish complacency. Thus while stocks are vulnerable, they have yet not tripped into a new negative gestalt.
MARKET SUMMARY: Extreme sentiment and the historic Trump Tax news has already occurred and has produced market highs until they are exceeded. The market profile is very tricky over the next few weeks and will inevitably produce some corrective episodes.
TECHNICAL VIEW by Gary Dean: Since 12/18, we have seen a lot of indecision amongst traders with the big moves in both directions. As you can see in the 60 minute chart below, there appears to be a bull flag forming, which is suggesting a break above this consolidation pattern, which I have labeled as the final 5th wave. With that being said, there is no guarantee that we will break out to new highs, being this 5th wave has extended so much and is very mature. But the lack of bearish divergences on the 60 minute charts, does give the break to new highs more value. If we do see new highs, it most likely will be followed by bearish divergences, which is what normally takes place in wave 5’s. Once completed, it will open the door for some type of selling pressure.
When looking at the 15 minute chart, it is pretty clear what the bulls-bears need to get through for higher or lower price action. The bulls need to break above the 2692-2695 resistance to get to new all-time highs. The bears need to get the spx below the 2674 level to get to the 2651-2649 level. Everything else is just noise, from what I see-and trading within the channel that is in place (bull flag)
The wave 5 is very mature on the hourly chart above-but it is within a wave 3 on the daily chart-shown below. This often gives us false tops and extends, but doesn’t change the wave structure, which makes it dangerous to become complacent on the long side. Once this wave 5 of (3) completes, a larger wave (4) down will start–before a larger wave (5) to new highs hits..but that is a ways away and we are concentrating on the next move coming.
Summary: The spx has been trading within a bull flag channel since 12/18. The lack of bearish divergences on the 60 minute charts has me thinking the bulls will succeed in breaking out of this channel to the upside. But that SHOULD be the final 5th wave and after that completes, it will open the door to some type of selling pressure. Being this wave 5 is very mature and has extended for much longer than anyone expected-a break to new highs is no guarantee-and something I will not be trading.
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