MARKET ENVIRONMENT: by Woody Dorsey.
This remains the “rarest of rare” market environments: The January parabolic “Buying Virus” has been harshly retraced. I understood that the 1/26 High was cogent. “Thus the best correction of the year and perhaps the last 6 months seems to be underway.” Yes, Rate Rises are the inevitable and are the “cure” for the excesses of Lapdance of Liquidity which fostered the Bull market in Stocks. The latest behavior is only a foreshadowing and But, Treasuries are a bit oversold near term. Paper Assets are on notice. The Liquidity party really is ending. Recent volatility may just be a Blurb for the future.
- Near Term Diagnosis: Sentiment is 14% Bullish today. Global equity markets are still in turmoil. It does look like the bounce to 2730 completed the upside. Stocks now intend to probe the downside. This is a world of very short term trading opportunities but it is not for “Believers” or rigid traders. Stay light. Stay flexible.
- Interim Term Diagnosis: An interim high occurred and a wonderful correction is happening. But the correction may be a quick “Clipper.” Most of the initial damage may be done.
- Long Term Diagnosis: This rare “Lapdance of Liquidity,” initiated by Central Bankers, has been culminating and may finally be over. But, a longer term top building structure may still take some time.
- QUESTIONS ANYONE? Client Questions: No Client Questions
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: As noted for many weeks: “the next timing profile is for a trading low near Join Now To Get Exact Date Now, there are a few tricky timing sequences coming up. Bottom line, is that there is more time Join Now To Get Exact Date for downside potential. I would be more favorable to the long side of trading after Join Now To Get Exact Date I can also amplify what I mentioned about the VIX profile. It does have a low near Join Now To Get Exact Date in sync with a trading high. Thus, there is nominal room for an overall recovery from Join Now To Get Exact Date Then another shoe on the down side can drop. These are fluid trading time zones and I will be watching them carefully in alignment with Garys’ read of the wave counts. As noted last week: “the 1/26 price High is a defined extreme.” I prefer that this mini crash will be quick but we are not that far off, in time, from that High! Join Now To Get Exact Date closes may be critical tells. Again this both a Daily and a Weekly system occurring at once. Once a low is confirmed how the market bounces into Join Now To Get Exact Date will be a big tell and maybe a big opportunity.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment became extraordinarily High. I had noted for some time that, “very low sentiment was required to confirm a larger tactical turn.” The 8% on 1/31 following the 99% on 1/29 was a micro tell of that which was ratified by the 2% and 1% Bullish readings. Market Psychology has really changed.
The DORSEY Intermediate Market Sentiment made an optimistic extreme. Parabolic price behavior is always coincident with unsustainable emotional assumptions which are always harshly retraced. A major, “Emotional Error” occurred in the stock market. This will take some time to be understood and resolved.
MARKET SUMMARY: An interim market extreme was registered on 1/26 and the correction due near Join Now To Exact Get Date has been unfolding. The profile preference was that this market break is a fast moving “Clipper System” which, while severe, may not last that long. I say that because the profile is for both a Weekly and a Daily low hitting at nearly the same time. Stocks “Crashed,” and 1% and 2% sentiment readings occurred. There is still time left in the profile for corrective behavior but is a bit late to get super aggressive. I have given time targets noted above which offer filters of what to expect and how to position over the next month.
TECHNICAL VIEW by Gary Dean: The SPX has settled down a little since the heavy volatility move we saw on Monday/Tuesday. From a technical and pattern view, neutral is the best option right now. Using history as our guide, Monday/Tuesday’s lows will be tested at a minimum-with a wave structure pattern allowing for a lower low. Assuming history and the wave structure is correct and we are heading down at some point, the short term movement is hard to see. We could continue higher and make the larger wave B up with wave C down pending. Or we could head down and retrace some-head higher and then lower. I have put the different options on the charts below-to show you why I am as neutral as neutral can be for the short term. My preferred pattern-would be the first chart-where the spx makes a low around these levels-and then squeezes some shorts to make the larger wave B up. It would make a better trade set up in my eyes.
The chart below shows the short term bearish pattern-where we already made the wave B up and are on our way to test or break the lows from earlier this week. This pattern is a little harder to trade, as one would be shorting at several support levels after a massive drop. Tough to trade and why I prefer higher before lower-even though this pattern has the same odds as playing out as the bullish pattern.
The short term spx chart shows it trading bottom of a large support/resistance zone. A break below would suggest a move to the 2648-2621 support zone. A break above would suggest a move to the 2760-2770 resistance zone. That is a big spread and with 50/50 odds of either side winning-not a bad time to just watch from the sidelines.
Wave (3) was labeled complete and we are now in the process of making the wave 4 down. Once this bottoms-a wave 5 up should begin. If we need to head lower to complete the wave 4, 2535 and 2465 would be potential targets.
Summary: There are good reasons for the spx to head higher or lower from here and there is a pretty big spread between support/resistance if you choose the wrong side. When we have this big of a spread, the boys some times like to play mind games and whip saw traders in and out. Not a bad time to watch and let the dust settle before making a trade on a direction.
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Information is for paid customers and may not be copied or distributed Copyright 2017