MARKET ENVIRONMENT: by Woody Dorsey.
The short bias from 8/30 was stopped out for a 10 point S&P loss. It was a great profile and a good trade. The fact that the downside did not work this time is not necessarily “bullish.” We are seeing a political drama play out in the media. Is it Character Assassination or Character Revelation? Notice how no one really like to really tell the whole truth and nothing but the truth. It is all very dark and Stomy! The lack of trading rhythm is not providing typical market profiles. Let’s wait for clarity.
- Near Term Diagnosis: Sentiment is 12% Bullish today but the market is not clearly impulsive to the downside and leaves an uncomfortable two sided prognosis.
- Interim Term Diagnosis: The Interim profile continues to be congestive.
- Long Term Diagnosis: Equities are in some sort of topping process. That is not relevant to trading decisions. I am Looking to Buy a Low due in 2022. But that does not mean the market can’t keep going higher from here for a while.
- QUESTIONS ANYONE? No Client Questions
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MARKET TIMING: A top occurred in late August but the ideal downside profile for September did not manifest. Now as I noted, there is another price pattern into 10/10 but is not crystal clear. I still foresee a notable relief rally in November. That may be followed by decent weakness into year end.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment generated (99%) bullish on 8/27 followed by 97% bullish on 8/28. That euphoria was an extreme. But the 16% reading on 9/18 was the lowest reading since 8/16 and stocks advanced again, registering a 98% bullish on 9/21.Stocks are faltering again from that extreme but there is no definitive data of a really important reversal.
The DORSEY Intermediate Market Sentiment deterioration did not produce meaningful price declines. It moved to relatively neutral levels and rallied back towards typical extremes again. As Interim Sentiment has cycled back up again, it infers that the market only remains in a confusing congestion and may not be fit to trade.
MARKET SUMMARY: I repeat: “It is still not clear what the degree of correction in September will be.” Stocks are congested here and may remain so as multiple cross currents may continue for some time. They are strange. Again: “Thus it is wise to become aggressively agnostic in the near term.”
TECHNICAL VIEW by Gary Dean: The expectations were for the spx to do some backing and filling after last weeks massive bulls attack. We are getting that and one of the targets from the highs, was 2910, which would be the “gap fill” which has been a very reliable pattern, when it gaps to new highs. We came close to that target Monday, but it is still open. If we see selling continue, that should get filled and if we head even lower, then I expect 2900/2896 to come into play. The lack of bearish divergences at the highs, has me thinking we will test or even slightly break those highs at some point.
The bulls need to push the spx above 2927 to get a reaction trade up to the 2941. The bears need to get through 2910 and then 2900 to get any attention here. New lows (below 2912) should set up some bullish divergences, so maybe we see a bounce down there. No guarantees, as this market has been a one directional instrument–up or down.
Nothing has really changed on the daily charts..The new set of highs has brought about a new set of bearish divergences on the daily chart. As you can see, the bearish wedge is still in place, even with these new highs. Jumping long blindly with a 3000 target (just because it is a round target) is a low odds trading plan. Maybe it gets there, but many thought it was getting there when we were at 2917 in late August-and had to wait until today to get out from losses. The point, the bulls have been resilient, but that doesn’t make just jumping long blindly safe.
Summary: I was expecting the gap at 2910 to get filled and we should still get there. But the lack of bearish divergences on the hourly charts, has me thinking the 2941 highs will be tested or even broken before we see real selling hit. The 2910-2900 area should have buyers waiting and if we break below that support, 2885 would be the next target.
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