MARKET ENVIRONMENT: by Woody Dorsey.
The January 1/26 parabolic “Buying Virus” High was harshly retraced as expected and, “the best correction of the year and perhaps the last 6 months,” occurred. Suddenly, investors became obsessed about a 3% 10 yr. yield. What will happen when it gets to 8%? Rates will rise for decades! But I allowed that stocks had put in a quick correction on 2/9 and would likely bounce into 3/8ish. It was a Buy the Dip and there may be another one looming. Game on. Enjoy the Upside.
- Near Term Diagnosis: Sentiment is 98% Bullish today. Yes, this is high but is interpreted as confirming the price proof which stocks offered last week that they want to go higher.
- Interim Term Diagnosis: The recent mini plunge looks like it was just another “Buy the Dip.” But Stocks have actually entered a new and different wave. They are now closer to an important high. However, I see at least one more Buy the Dip coming
- Long Term Diagnosis: This rare “Lapdance of Liquidity,” initiated by Central Bankers culminated but, a topping process might still take months.
MARKET TIMING: As noted on (2/12): “The preponderance of indicants suggests that the trading low was registered on 2/9.” Stocks were then profiled to bounce into near 3/8. Now, there are several potential topping dates: 3/5, 3/8 and 3/15. The projected 3/8 date is in the middle of that time zone. So there may be a process of ending this recovery and before setting up for the next decline. I would prefer not to get too bearish until we see more trade and after 3/13. However, I am looking at another Clipper type correction from there into April. If so, it would be short and sharp. It makes sense for the Bulls to get super comfortable over the next two weeks.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment became extraordinarily in January. The 99% on 1/29 was the final bullish reading. The 2%, 1% and 1% Bullish readings all together signaled the panic pessimistic short term low of 2/9, as allowed. Sentiment has recovered dramatically from there. Today’s 98% bullish is best interpreted as further confirmation that last week’s confusing trade was bullish. This fits with more upside tries since confidence has returned.
The DORSEY Intermediate Market Sentiment made an extraordinary optimistic extreme in January before a bit of a crash in optimism. Investors and Pundits are recovering their bullish assumptions once again. As I said last week: “Bounces in sentiment are due to continue. I will be looking for a sentiment signature coincident with the timing pattern in order to determine when this recovery is over. This Recovery process is making the Bulls forget what just happened.
MARKET SUMMARY: A High was registered on 1/26 followed by a panic plunge into 2/9. The upside recoveries were projected into 3/8ish. This is due to eventually set up in a time zone in March for putting on a short bias.
TECHNICAL VIEW by Gary Dean: After a week of consolidation between 2755-2700, the bulls finally decided to break out of the range to the upside. It is now starting to approach the resistance zone I have mentioned 2791-2817. Short term volatility (VXX) is higher this morning with some early gains on the spx. This is a warning sign to NOT get aggressively long at these levels-and it would be best to manage open long positions closely. Buying dips is still the safest trade and if we do see some selling at the resistance zone, looking to buy between 2756-2730 makes sense. Obviously-there is no guarantee these levels will come into play, but from a technical view-they make sense. I like the neutral view from up here and wait and see if we get some type of pullback to buy the dip. Buying up here is a bit risky for my taste, even if we continue higher.
From last week: Below are the possible scenarios I see playing out. Either we made a short term low at 2703 and are now heading to 2766-2780 or even 2800. Or this is another whip-saw head fake and we head down to the 2670-2645-2619 area. Before any downside momentum can pick up, the bears would need to get the spx below the 2698/2688 level. For the bulls to get any upside momentum going, they have to push the spx above the 2755 level. Everything else is just noise. It is obvious the bulls won that battle and we have broken out to the upside. 2788 was hit today and the SPX is now entering a resistance zone. Not a bad area to move to neutral if you took the long trade on the break above 2755 and look to buy the dip (if we get the dip) 2755-2735
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. 2525 was hit last week, so if they take out those lows, 2465 would be the next low to watch for to complete the wave (4) down-and then spring board higher for the 5th wave up.
Summary: We had a nice break above the 2755 and are now entering the resistance zone. Manage long positions and looking to buy the dip at the 2755-2735 support zone makes the most sense. A breather seems likely here.
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