Summary of this report–Market Bias: Bearish, looking for a top any day with a low due near 02/13-02/17. SPX topped 1 week later and dropped 350 points. Low came in on 02/09 and covering shorts was suggested to members on 02/09. See here
MARKET ENVIRONMENT: by Woody Dorsey.
This remains the “rarest of rare” market environments. And as we see, anything can happen. The, “Buying Virus” Continues. Again, “Stocks will have a great correction into 2021 due to rising rates but, not yet.” Market participants are overly excited. I am not. I watch many markets and want to share with you a trading profile I have been stalking. I have bought and am buying this break in Crypto Currencies as a low was due near here. If you wanted to get involved, this is a great break. Enjoy.
- Near Term Diagnosis: Sentiment is 95% Bullish today. Ho Hum. The “buying virus” continues.
- Interim Term Diagnosis: An interim high can occur at any time and, once confirmed (wait for it), should resolve into a corrective period like a 4th wave, “before another run up into Q2.” There is another interim timing target for a Buy the Dip near Mid-March.
- Long Term Diagnosis: The rare “Lapdance of Liquidity” initiated by Global Central Bankers still has psychological momentum. Again: “This may continue into mid-2018 before a 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: An expected early year spike has continued and has actually become viral. Anything can happen. Again, “the next timing profile is for a trading low near 2/13-17 and even better timing for a low near Mid-March.” That timing does not, nor did it ever, mean that the profile was for declining prices from here into there. This timing idea is only that lows are due around then.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment remains extraordinarily High. Again, boringly: “High sentiment is not necessarily a sell signal.” Thus, so far, high sentiment has been a confirming indicant of this rare upside momentum. So, very low sentiment on new negative news remains required to confirm a larger tactical turn. That has not happened yet.
The DORSEY Intermediate Market Sentiment is still strengthening 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 in order to initiate a notable decline. Wait for it.
MARKET SUMMARY: Extreme sentiment continues and the “Buying Virus” remains operative. 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 2/13-17ish and an interim low may come nearer Mid-March. Thus, it makes sense for a high to come relatively soon, in order to give the market time for some kind of a 4th wave correction. Don’t get too excited.
TECHNICAL VIEW by Gary Dean: On Tuesday I mentioned that the previous highs came without any bearish divergences and if history was going to be our guide, the bulls would at the least test or even break the highs. That happened yesterday and now everything that was needed to look for a high from a technical view is in place Yesterday’s monster move left us with a double top pattern.
There are enough waves to call this complete and one has to be on their toes-as a larger turn down may have or could start anytime and fit the profile. And to add to the topping profile maybe being complete, we even had a NYAD sell signal-something that has always been in place before a larger drop started. Does this mean we can’t make another high? No-but it is telling us that we are in the later innings of this move-if it has not already ended.
When looking at the 15 minute chart, we can clearly see the double top pattern-which is a bearish pattern. Being we didn’t make new highs-we are still lacking bearish divergences. But banking on a new high when a double top pattern is in place-is not a high odds trade. And even if we get the new highs, it will only give us the bearish divergences–so the long side has become very risky here.
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: Yesterday we got the expected bounce, but we didn’t make new highs to produce the bearish divergences. What it did produce was a double top pattern. So either we need to try and squeak out another new highs to produce bearish sell signals-or the double top sell signal pattern has marked the top. Either way, the long side is very risky here. But the bears need to get the spx below the 2768-2758 support zone to get any downside momentum going.
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