After the previous intraday reversals proved meaningless during this blow-off phase of the uptrend, the question is now whether Friday's reversal was more meaningful.
I obviously think it was, as I had come out and predicted such a blow-off top in Friday's briefing. The script was set for this conclusion. I wrote that we'd see a bullish reaction to the unemployment report (which I didn't know at the time), and that spike would be sold off hard the rest of the day.
My reasoning was simple. We'd had 10 strong up days, and now the market was in a position to blow-out the last bears standing and even convert them into bulls. It was a panicky, "melt-up" for the markets. But coming all the way back down and closing below the opening 30 minute white candle is a sign that this parabolic blow-off phase is over. All those who threw in the towel and got bullish off that opening spike are in a losing position, and their conversion may have marked a more important top.
If the market was in gear for more immediate upside, that opening 30 minute white candle should have held up.
Also, I showed the weekly candle chart on Friday, as I was very interested to see if the market could conquer that first big red weekly candle from last July. It didn't happen, as the reversal left a long tail above that level.
Just to refresh your memory about that July 7th week -- as even I tend to forget a market that shocking -- the S&P 500 fell from a high of 993 all the way down to 900. That is 93 points in one week. The next week the market tumbled down to 842. The week after that it hit 775, before rebounding to close at 852. Aside from a brief trip out of this intraday range (775 to 993) at the October bottom, and now a quick trip out of this range to the upside, the market has lived between the boundaries of that eventful 3-week period now for over 10 months.
So it's really "do-or-die" time this week in the markets. If we're going to break into the clear, and vanquish this bear market trading range, the time to do it is now. Overcoming that big July meltdown, close to one year later, would seriously hamper bearish arguments. If the markets can move up now and take out 1007, and in the process July's red weekly candles, then reciting bearish fundamental cant (while all true) may just be shouting into the wind, at least for the moment. A new "mini-bubble" fueled by massive liquidity from the Fed will be re-inflating, and that's something that will knock over every single bear before it's done, and cause many promises made during the bear market to be broken regarding money that "would never go back into stocks.". If the markets can accomplish such a breakout, even in their already overstretched, overbought condition, then that would be pretty amazing.
So the market should pull back here, off Friday's reversal. It's my guess that we'll now see a decline into options expiration, which is a week from Friday. After that, it's likely the markets will come back up to this area now, probing and testing the stamina of both the bulls and bears.
One last note: for fans of legendary "mysto-trader" W.D. Gann, Friday was an important day. Price on the S&P 500 has moved from a low of 768 on October 10th to 1007 on June 6th (Friday), which is a move of 239 points. June 6th also happens to be 239 days from October 10th. Gann believed that price and time "square out" like this at important turning points. I'm not convinced, but it's something that's out there, and I know he has many devoted acolytes. Actually, some really great traders that I know use Gann's work as their foundation.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: The tank rose incrementally to 9.5% full of negative sentiment on Friday. It's flirting with breaking up out of the recent range. That would be associated with a decline in price.
SHORT-TERM: The hourly gauge is in a weak decline phase.
MID-TERM: The mid-term gauge progressed 6 points in its decline phase to 66%. Our Confidence Diffusion Index (CDI) clicked back on to the bearish side of 0, moving 3 points to a bearish 2 (out of 7).
LONG-TERM: The weekly gauge progressed 2 points to 3% in its developing decline phase. The weekly CDI progressed to 2 (out of 7).
BOTTOM LINE: The tank's ability to stay so low for such a long time speaks to the market's underlying strength. Sentiment is behaving differently than it has over the past year, which should be taken as probable confirmation of a phase change in the market to a cyclical bull market. The current mid-term decline phase has not had any traction as far as price goes. It may get a bit of traction now, before it expires, but a price decline will likely bring in buyers and set off a new mid-term advance phase that takes the market to new local highs.
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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