Summary of this report–Market Bias: Bearish from 03/09, looking for a low in early April. The SPX dropped almost 200 points and made a low on 04/02.
MARKET ENVIRONMENT: by Woody Dorsey.
The January 1/26 parabolic “Buying Virus” High and the Panic Plunge on 2/9 have defined a wide tactical Range. This is a Trading Market. Trade it. Don’t Believe in it. Big opinions are dangerous. Cabinet changes, including the appointment of Scary Kudlow may be synchronous with further declines in Market cohesion.
- Near Term Diagnosis: Sentiment is 8% Bullish today. Traders are confused and feeling a bit down but bounces should fail.
- Interim Term Diagnosis: Another corrective episode is due to begin soon and last into early April which may result in another “Buy the Dip.”
- Long Term Diagnosis: A rare “Lapdance of Liquidity,” is concluding. The parabolic rally into late January looks like a Mania Sure there are potential indicants for further diverging strength nearer mid-year. At any rate, trying to Trade long term views can be dangerous.
- QUESTIONS ANYONE? Client Questions: No Client Questions
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MARKET TIMING: As noted on (2/12): “The preponderance of indicants suggests that the trading low was registered on 2/9.” As noted, the market is, “now in a preferred time zone when another decline may begin.” There has been profiled to be another “Clipper type Correction” which is due to last into early April. In fact the most convincing downside may not occur until next week.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment had an extraordinarily bullish endpoint with a 99% reading on 1/29. The 2%, 1% and 1% Bullish readings signaled the panic low of 2/9. The Sentiment spike of 99% Bullish on 3/12 looks like the end of the short covering bounce. Investors are a bit confused but have not really turned meaningfully Bearish.
The DORSEY Intermediate Market Sentiment remains ranging. Investors and Pundits recovered many of their bullish assumptions but some doubts may be creeping in. Profile prefers a deterioration in bullishness into April. Expect disappointment.
MARKET SUMMARY: Stocks remain in a volatile Range between the 1/26 High and the 2/9 Low. The overriding profile is for a developing failure resolving into a low early April. Stocks are seemingly thrashing around here but in reality are subtly deteriorating. New negativity is due to arise and enable stocks to go down into early April. Yes, that decline may resolve into another “Buy the Dip.” But not until we see the, “Dip.”
TECHNICAL VIEW by Gary Dean: The bearish divergences identified on Tuesday did cause a pullback into the 2760-2740 support zone. Short term momentum is oversold with some buy signals, so seeing a bounce into resistance would not be surprising. The 2761-2763 is the first level the bulls need to push through. If they succeed, then I believe we could see the 2770-2778 resistance zone come into play, which I think would be a better area to look to short-with 2786 being stop. If the bulls can push above 2785, neutral would be warranted-until we see a sell signals. The bulls have to get above 2800 to see momentum come back to their side. The bears need to push the spx below 2700 for momentum to really pick up on the downside.
There is a bearish wedge is still in play-as we have not seen a break to the downside. But as I mentioned above, the bulls have to get above 2800 for a chance to touch the top of the wedge in the 2840 range. If the bears can push below the 2730-2700 support, then we will see selling pick up-maybe a panic sell to the 2650 support. Stay in trade mode until we see a confirmed directional break.
There are a couple big picture road maps that could play out. Instead of guessing, let’s just not assume and see what plays out. Either we made an important low and are consolidating here. Or we are making an ABC up and lower is coming. Let the shorter term charts determine the bigger picture for now. Just to big of a spread to be guessing long term right now.
Summary: We are trading within a range-2700 to 2800. The bulls are obviously on the defense here, but until we see a clear breakdown, below the 2730-2700, stay nimble and expect moves in both directions. The 2778-2782 resistance is important for the bears to hold-above that, then we could see 2800 or higher. Below 2730, 2700 should come quickly. Now is not the time to get aggressive on either side. Let things play out first.
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