MARKET ENVIRONMENT: by Woody Dorsey.
This remains the rarest of rare market environments. And as we see, anything can happen. It is a, “Buying Virus.” Note that stocks only had a nominal response to the advertised Bond declines of late. That infers that Bonds are not really quite ready to tip into a factor for an interim Stock market turn. I will address this in a Stock Bond Ratio update. Again, “Stocks will have a great correction into 2021 due to rising rates but, not yet.” Todays renewed upside spike is suspicious. Let’s see how we close.
- Near Term Diagnosis: Sentiment is 99% Bullish today. The “buying virus” continues.
- Interim Term Diagnosis: An interim high can occur at any time and, once confirmed, should resolve into a corrective period like a 4th wave, “before another run up Dates are for members only.” There is new timing that such a 4th wave may end near Dates are for members only.
- Long Term Diagnosis: The rare “Lapdance of Liquidity” initiated by Global Central Bankers in 2009 still has psychological momentum. That may continue into Dates are for members only. before a larger expected corrective profile into 2021.
- 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: The expected early year spike is still running. Again, “the next best timing profile is for a trading low near Dates are for members only.” There is an even better deeper timing for a low near Dates are for members only.. On the upside, there was some secondary strength possibility into today. Watch to see if they can reverse today.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment remains extraordinarily High. Again, boringly: “High sentiment is not necessarily a sell signal.” Again, very low sentiment on new negative news remains required to confirm a larger tactical turn. That has not happened yet. Look for very low sentiment to confirm. Today’s 99% is cautionary but only a real reversal is confirming.
The DORSEY Intermediate Market Sentiment is rallying up into a more defined optimistic extreme than it has in some time. Still, some really new negative sentiment is required to definitively change the existing bullish complacency. Thus while stocks are vulnerable, they need really new negative stories. Wait for it.
MARKET SUMMARY: Extreme sentiment continues and the “Buying Virus” continues. We still need to see a defined reversal before determining the shape of the next interim correction. Again, the next defined trading low is due near Dates are for members only. and an interim low may come near Dates are for members only. Thus, it makes sense for a high to come Dates are for members only., in order to give the market time for some kind of a 4th wave correction.
TECHNICAL VIEW by Gary Dean: It is a strange day when you see the major indexes up close to 1% and they are lagging volatility-which is up 1.93% (VXX) This rubber band is being stretched in both directions and one side is going to be wrong soon. Friday/Today’s big move have washed out any bearish divergences that were forming. That suggests that we are in some type of minute wave (3) up and once this completes, a minute wave (4) down and wave (5) up are next. So we could start to see some choppy tape soon, but if history is our guide, the bulls should at the least try and test or break the highs we leave behind here. That would again, put the ball in the bears court to decide if the minor wave 5 has completed-which would open the door for a much larger pull back. But being we are so extended on this wave 5-there is no guarantee that divergences have to form to complete this massive move higher-it just would fit the ongoing profile if it did.
When looking at the 15 minute chart, the lack of divergences on hourly chart, has my preferred pattern as the high just left behind today-is some type of minor wave 3. The move lower now is the wave 4 and we should have another wave 5 to complete the pattern. Again, there is no guarantee that divergences need to be in place to form a top-it just would make a better trading set up.
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: Today’s big gap higher ran into resistance pivots and reversed lower. But the lack of bearish divergences are suggesting the bulls will at the least-test and/or break the highs to complete the pattern and form some bearish divergences before the larger drop starts.
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