MARKET ENVIRONMENT: by Woody Dorsey.
I mentioned in the note from 10/8 that this decline was due to last into 10/11 and or 10/15. It is maintaining its viral negative nature. Thursday’s trade will be telling. Meanwhile, “Crazytown” politics is remaining amped. Election uncertainly may be discounted much sooner than expected. Still, recognize that a viral cascade of negatives is occurring. As I noted, this is typical of a 3 or c wave phenomenon. China and Rates remain cogent stories. The FED admitted that economic statistics and stories were “2 Good 2 B True!” Rates will continue to rise as I noted 5 years ago. They will keep rising for decades.
- Near Term Diagnosis: Sentiment is 43% Bullish today. That is not any kind of minor victory at all. It looks like yesterday was a bounce that used up the oversold potential. The very overt downside from S&P 2940 continues to be validated.
- Interim Term Diagnosis: The divergences in Sentiment, the Advance Decline statistics and multitude of negative market stories argue for an Interim High being in place. But it may manifest as a downward congestive correction which would allow the majority to cling to Bullish Hopes for another rally. It won’t likely work out like that.
- Long Term Diagnosis: Equities are in a topping process. That is not relevant to trading decisions. I do foresee a Low due in 2022. I have been bearish on Treasuries for 5 years, Big Picture, but that has not really helped anybody trade.
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MARKET TIMING: I had noted, “The next price pattern is near 10/10. I still foresee a notable relief rally in Dates are for members only. That may be followed by more weakness than anyone expects into Dates are for members only.” Now, the code is defining further: Trading Low later this week. Recovery into Dates are for members only Moreover, election resolves more or less favorably with typical upside into Dates are for members only. Then perhaps surprisingly decent downside in Dates are for members only. These codes may morph and become more defined so keep watching for that.
SENTIMENT INTERPRETATION: The Dorsey Tactical Market Sentiment generated 98% on 9/21. That euphoria was the extreme. The 98% did tag the High close so far. It is strange how telling these numbers are! I am watching for some kind of really low sentiment number for us to reference with the timing and technical pattern. It has been trending lower but a hard down day into the close has not happened.
The DORSEY Intermediate Market Sentiment did diverge notably and has been deteriorating. It has retreated back to relatively low levels which fits with a profiled low later this week but remember that if the Interim Trend is just beginning to change, it need not signal any robust contrarian extreme just yet.
MARKET SUMMARY: Stocks had made new highs, reversed overtly and followed through. Thus a real, albeit rare, correction is occurring. The nominal timing code is for a low later this week as recent negatives and the upcoming election uncertainly begin to be discounted. There is definitely upside in Dates are for members only to this Fall may end up being a confusing volatile extension of this year’s range. But, there are internal changes in the process of changing into a more structurally challenged market.
TECHNICAL VIEW by Gary Dean: We have seen some selling over the past week and support was tested and held so far. I pointed out the inverted head/shoulders pattern last night and it looks like it may be playing out. Pattern is on the 15 minute chart below. If it is going to play out, then 2920-ish would be the target. We do have some bullish divergences on the 60’s, so I would be a little careful shorting heavily. We have seen some important lows made with this set up. But the bulls have to push through the 2910 resistance to get themselves out of the woods and until they accomplish that, the short term bears are in control.
Below is the inverted head/shoulders pattern. 2903 is the first resistance and if broken, we should see a reaction trade up to 2910/2920. The bears need to get the spx below the 2861 support, which could cause some panic selling down to the 2952/2941 support. I still like lower first, but I am open minded from a technical view for a low to MAYBE be in place. If the bears push below the 2861, we could see some serious momentum pick up on the downside. 
The bears did push the spx to the 50 dma where buyers were waiting. If we continue to see the bears press, 2800-ish is the 200 dma, which may become a magnet. The 50 dma was the first magnet line and that was hit, 200 dma next? The bears have some work to do, but the bulls still seem to be exhausted from the last push higher.
Summary: I am a little more neutral than bearish right now. If we head lower, it would make sense and 2800 may come into play. But if we head higher, the bulls will be running with some bullish divergences as well as a pattern that is pointing to 2920. So I am neutral and will let the market do what it is going to do. The bulls need to push above 2910 and the bears need to push below 2861. We may see a chop fest until one of those lines are breached.
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