Changing Sentiment

I've been getting a lot of retail sentiment updates plus the ones I get from AAI/Investors Intelligence, but I think members who are dialed in to the Twitter community get the best feel for sentiment and especially as it relates to what they are looking for which is the same thing Technical Traders would have been looking for a century ago, the difference is Wall St. knows the game and knows how to play it and retail traders never adapted (this didn't become a big issue until TA went mainstream with the Internet and online brokers).

So today's sentiment report is not surprising in the least...

"Practically everybody on my stream was calling for the 200 day as if it was a certainty yesterday."

This makes perfect sense from a Technical point of view, it's the same expectation traders would have had in 1932 or 1964, but times are different. We may not have the perfect system, if I did I wouldn't be sharing it with you (Actually I'm just kidding, anyone who is serious about the market, who are good people and willing to stray from the herd, in my view deserve success).

 As you can see on the daily SPX chart a move to the 200-day moving average as retail sentiment was strongly predicting yesterday would be a pretty strong move and even looking at the F_E_D liquidity pumped maket, you can see the market still doesn't move in straight lines, the F_E_D pumped liquidity would be the best chance to see something like that and to the left, we don't see it. The market is a series of waves.

Since Dow Theory can be difficult to explain in a short period of time and since there have been revisions to it since first recorded in the WSJ almost a century ago (Charles Dow owned the WSJ), the best visual example I can give is the beach and tide.

If you go to the beach and wait for a wave to break and roll up to its highest point on the beach and then stick a wood stake right there in the sand, over the next few hours you'll see that the waves are either coming further up the beach (an incoming tide or bull market) or are receding, an outgoing tide or a bear market, but no matter what the tide, the waves will still roll up the beach and the market is exactly the same.

The candlestick pattern I talked about Tuesday was a bullish Harami upside reversal, since it put in hammer candlesticks yesterday which are also bullish reversals and many of them were also Harami's (their body fell within the body of Monday's large body). Today we seem to have good confirmation of a reversal, but we've been hunting this move for more than a couple of days.

 Several days I go I posted this exact chart of the long and shorter term trendlines, that's exactly where the move found support. This also looks like a broken H&S top or an unfinished H&S top, they aren't all textbook. 

Usually once the neck line is broken, retail chases the move and the sentiment has clearly been bearish, that's typically when we see the H&S volatility shakeout back above the neckline which it appears we will see, this accomplishes about a half dozen things, they're all well documented in my 2- part article on the member's site, "Understanding the Head-Fake Move".

 As far as the Trend Channel for the SPX, it held all of 2013, it recently broke for the first time, but until the channel is clearly trending down, volatility and choppiness are very high in this area which often causes the channel to move sideways for a short period which it is just starting to do now.

 My X-OVER system was never going to give a long signal on a daily chart in this environment, but a 60 min chart isn't bad and we are a hair away from that with the middle indicator almost crossing above its moving average, this would be a wave in the larger tide rolling up the beach even as the tide is moving out.

 Note the 3C divergence (accumulation/Distribution) we've been tracking and this move we've been hunting has been very predictable as we have been able to predict every move since the 24th starting the 27th. Even with a move lower which I believe is a head fake move, it certainly did its job with retail sentiment, we still have an unbroken leading positive divegrence since the 27th.

 The QQQ has the exact same thing at the exact same place.

As does the IWM, this is not coincidence, these averages don't give exact same signals over the same period unless there's something to it.

So I'd still expect waves of all sizes, minor intraday waves, daily waves and even weekly until we make our next move to a lower low and likely bust right through the 200-day moving average rather than find support, retail expects one thing, Wall St. will do another.

In any case, you know I expect a move strong enough to change sentiment, but there are no victory laps in the market so we'll keep watching, but if this is as we suspected, then there's not going to be a lot to do other than take care of the positions we entered in expectation of this move, look for some new entries and at a certain point when we are seeing distribution on a large scale, move in to core short positions like GS, PCLN, NFLX, GOOG, etc.