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Only a Fool Tries to Call a Correction in a Bull Market, So Here Goes! Martin Pring


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#1 dTraderB

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Posted 24 January 2021 - 07:58 PM

I am in the CORRECTION camp, officially, as of last Friday. When will this correction occur? It may have already begun last week but it will not be all down. SPX 4K still possible before any major correction (more than 5%)

 

Only a Fool Tries to Call a Correction in a Bull Market, So Here Goes!

 

The Correction?

I have often argued that trying to call a correction in a bull market is a mugs game. That said, there are some things that worry me about the near-term outlook, not from a bear market point of view, but more in the way of a sideways correction. I guess what I am saying is that all bull markets are temporarily interrupted by corrective action, and now might be as good time as any to expect digestion of recent gains.

Chart 4 features the NYSE Bullish Percent indicator. On the one hand, it's very overextended, as it was in 2004 and 2009. Both situations were followed by sideways consolidations. On the other hand, such strong readings also represent a form of breadth thrust. A breadth thrust is an exceptionally overbought oscillator that occurs in the early stages of a bull market. You can see that because these corrections were part of the overall bullish trend, as flagged by the green arrows. Bottom line, while the current high reading suggests that the market may be risky for traders, it's a positive sign for long-term investors.

07b48c2e-3dbd-42ea-98e1-f2af0b32d1a5.jpgChart 4

My Dow Diffusion indicator (Chart 5) triggers sell signals when it reverses to the downside from a reading above its red overbought line. Since 2015, such signals have consistently been followed by a downward or sideways correction. So far, the Dow's reaction has been to rise. However, the failure of the indicator to rally back above its MA is not a positive sign.

5923fb41-ddab-4a2c-aee8-e8817c178e29.jpgChart 5

https://stockcharts....l-a-co-443.html



#2 dTraderB

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Posted 24 January 2021 - 08:03 PM

First LOSING week for 2021 after the first two were profitable. Was up for the week in early Friday decline but NQ rallied into the close and that small profit disappeared. 

 

Haven't read of RYDEX RATIO for some time ...

 

"I believe it is time to revisit the Rydex Ratio sentiment chart. A few DecisionPoint.com subscribers have noticed how overbought it has become; I wrote about it in last week's DP Weekly Wrap for subscribers of the DP Alert. Thursday night (1/14), after the latest asset counts were in, the Ratio finished with the lowest reading recorded, at 0.09. We invert the scale to arrange overbought readings on the top. A very low reading means participants are VERY bullish. Euphorically bullish investors lead to downside reversals.

On the chart below, we've annotated cardinal price tops. You'll note that at these tops, the Rydex Ratio was always overbought."

9ccaff71-26a4-4ea7-8ac5-b3bf18426500.jpg

The long-term chart shows you that, indeed, these are the lowest readings we've ever recorded for the Rydex Ratio.

863916d9-dbd7-49eb-bf3b-2f1e8634f7b0.jpg

But wait! There's more! Tom McClellan wrote an article last night about the National Association of Active Investment Managers (NAAIM) Exposure Index that is a must read. We had thought that this new reading was the highest exposure reading ever, but it turns out our 2017 data wasn't quite right, so we did see a higher reading back then.

I still think seeing the second highest exposure reading is big news and goes hand in hand with what we are seeing on the Rydex Ratio. I've annotated cardinal market tops to give you perspective on how this sentiment works. Typically, right before major market tops, we see very high exposure readings. You will also note that, after the highest reading ever in 2017, it took a few weeks before the top was in. That could be the case right now, given the strong bullish bias in the market. I also annotated one of the lowest exposure readings ever and you'll note that came right before the bear market bottom.

https://stockcharts....ically-226.html



#3 dTraderB

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Posted 24 January 2021 - 08:08 PM

This trader-talk guy will be there on February 1st: :

 

I have a special announcement regarding sentiment! Mark Young, CMT at WallStreetSentiment.com will be joining me in the free DP Trading Room on February 1st. He will talk to us about highly bullish sentiment and also analyze your symbol requests with me. I hold the free trading room each Monday at noon ET. It's recurring, so you only have to register once to have access every Monday. I demonstrate how I trade using 5-minute candlestick charts and we review stocks that are in the news, as well as your symbol requests, as time permits.

https://stockcharts....ically-226.html



#4 dTraderB

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Posted 24 January 2021 - 08:09 PM

GOLDMAN: “ ... pockets of the market have recently appeared to demonstrate investor behavior consistent with bubble-like sentiment. One such area is SPACs.” [Kostin]


#5 dTraderB

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Posted 24 January 2021 - 08:10 PM

Replying to
(2/2) GOLDMAN: “.. one part of the market that appears frothy and may pose a broader risk is extremely high-growth, high-multiple stocks .. collectively accounting for 23% of trading volumes during the past month ..”


#6 dTraderB

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Posted 24 January 2021 - 08:13 PM

Saturday Poll The next 100 points for the S&P?
 
UP
50.3%
 
DOWN
49.7%
2,495 votes·Final results


#7 dTraderB

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Posted 24 January 2021 - 08:15 PM

No one buying PUTS?

 

10 dma equity put/call ratio
 

https://twitter.com/...990264638504962



#8 dTraderB

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Posted 24 January 2021 - 08:17 PM

At 6500 $nq_f last year my target was 14000 Now at 14000 $nq_f my target is 5500 What’s so hard to understand


#9 dTraderB

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Posted 24 January 2021 - 08:26 PM

Have a great weekend! Many thought #ES_F top was in last week & this week it did the usual: put in its greenest week since Nov Plan next week: My target is 3920-the pullback zone. If bears cant react there 4065 next up. 3800 must hold though or we sell direct. Details below $SPX


#10 dTraderB

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Posted 24 January 2021 - 08:28 PM

We're seeing the types of speculative activity almost solely seen near short- to medium-term peaks. We're also seeing the kinds of thrusts and recoveries almost solely seen near the beginnings of long-term uptrends. It's very strange.