MARKET POINTS: by Woody Dorsey
U.S. Stocks have actually stopped going up! But note that it somehow feels like they are so bullish. Everybody is loving the market. A July High is forming in front of an approaching Black Hole environment. Black Holes are normal Corrections which typically have rapid declines in very short periods of time. Please beware of believing in any big picture Bullish or Bearish arguments. I study the Sentiment and the Timing. My specific profile is that a wonderful Correction is coming due soon. Everything argues for not playing the long side near here.
- Near Term Diagnosis: Trade remains bizarre but has essentially gone sideways and divergences are forming particularly in Sentiment. Sentiment was 94% on 7/21 which is coincident with a trading high so far. That was clearly a “candidate for a high but not necessarily a determinant.” As we march towards the Black Hole, vulnerability does increase.
- Interim Term Diagnosis: There was precedent for a July High B4 a Fall Fall. An interim High is forming.
MARKET TIMING: Repeat: “As Stocks rise they do become more and more vulnerable to a reversal.” The potential was for Recovery attempts in July. A Black Hole environment remains due into August. Stocks are now on the cusp of that profile.
TIMING SUMMARY: “July is a great month for Highs.” Last week was the “sweet spot for a trading extreme but harsh declines may not occur until after the 7/27 (FOMC meeting.) As time goes by, after 7/20 zone, the risk grows for weakness to develop.” It does seem to now be developing if stocks can have a couple of lower closes.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment has registered a series of High daily Sentiment clusters which typically signals emotional excess. Moreover, stocks actually sopped going up which, allowed an overt divergence to occur. The 94% Bullish on 7/21 may have ended the upside excitement.
The DORSEY Intermediate Market Sentiment did have a spiked and then began to go flat. This was a potentially dangerous psychological condition but only becomes actualized once there is a real shift in the Market Mood.
SENTIMENT SUMMARY: Sentiment surged up to 94% but has been going sideways since then. Sentiment now seems about to reverse. Stocks need a new negative impulse to really set off a big decline. The profile supports that outcome but it may be stodgy to start.
MARKET SUMMARY: The July spike is “setting up a favorable short side opportunity once the market reverses.” Remember, the average Black Hole declines over the last few years only lasted, on average, about 19 trading days. Thus Declines can happen quickly but traders don’t see that at the beginning. As noted last week: “I continue to watch for a Reversal signature as the sweet spot for a trading high remains near.” Today may be the beginning of that as the timing is now ripe for the cusp of the Black Hole environment. Let’s see a bit more trade.
TECHNICAL VIEW by Gary Dean: The bulls continue to try and grind higher without any real breather. But the pattern is very bearish and there are negative divergences on all time frames that is throwing out major red flags. The bulls need to push the spx above 2177 to have a shot for 2200. The bears need to push below 2161 to get a reaction trade down the 2130-2110 support area. The confirmation that the breakdown has started-would be when the bears get below 2101 on a closing basis.
- Short Term Support- Below 2161 is earliest clue 2124/2098 may come into play
- Resistance Levels: 2177-2200-2215