V-readings are incredibly high, and market participants are no longer as bearish as they were a few weeks ago. One of the characteristics of higher V readings is that they can widen the trading ranges. In simple words, it widens overbought and oversold ranges. For example, before the surge, Dow 30K would have been considered extremely overbought, but with the move up, the extremely overbought zone would start in the 30,600 ranges. Market Update Nov 24, 2020
If the current pattern remains unchanged, then the above ranges could be tested within a relatively short period. Market Update Nov 30, 2020
The Dow appears on course to test the 30,600 to 30,900 ranges and could overshoot by a much wider margin. We will wait until the MACD’s on the weekly charts have experienced a bullish crossover. However, the Nasdaq is probably the strongest market right now, and it is showing no signs of folding. It is the market that leads the way up that almost always also leads the way down. The first clues on how strong the ensuing correction might or might not be will come from the Nasdaq
When the masses feel that things will only get better, the market’s pullback sharply or specific sectors experience substantial corrections. However, one should be patient, for one never knows when this corrective process will take hold. Our trading methodology is simple when the trend is up, and the masses are not bullish. We deploy funds aggressively into the markets and vice versa. Before the past six weeks, bullish sentiment for almost two years in a row traded below or slightly above its historical average.
Dow Jones Trend: Park Your Emotions at The Door
As we have stated over and over again, Tactical Investor’s do not panic. When bullish sentiment is high, we take some money off the table. When bullish sentiment readings are low, and the trend is up, we deploy funds aggressively into the markets. We have a plan in place if the markets pull back firmly, and we have a plan if the markets do not pull back firmly. Here is a scenario, the markets don’t pullback strongly (minor correction only), but bullish sentiment drops to 36. That would be enough for us to take on a more aggressive stance to deploy new capital into the markets.
Dow Jones Trend: Next Target Dow 39?
These comments were posted in the Market Update forum on Dec 7th 2020
Sentiment continues to oscillate between the high 40’s and 50’s ranges. The latest readings are still below the recent high of 55, but we suspect that the markets are likely to rally to an insanely overbought state that could/should correspond to bullish readings of 60 (plus or minus 2 points) before a top is in. Hence it is possible that the Dow could trade past 31K. High V readings widen the extremely oversold and extremely overbought ranges
Adding fuel to the fire is that the Nasdaq is now trading in the oversold ranges on the weekly charts, so this favours high prices in the short term; Hence it appears that the Santa Claus rally is intact. However, we will continue taking profits, so expect the next issue to be short as the focus will be on tighter stops and taking more profit. We are taking profit not because we are nervous, but because there is a good chance we could get into many of the current plays at a more favourable price. Additionally, it is always prudent to be cautious when bullish sentiment is trading well above its historical average for several weeks.
However, it is interesting that the Nasdaq is trading in the oversold ranges on the weekly charts. Currently, it is much stronger than the Dow. The Nasdaq could technically surge to the 13,200 to 13,600 ranges with an overshoot to as high as 14,500. When markets rally upwards strongly, they will experience sharp moves in the opposite direction sooner or later. However, one has to be patient for markets love to punish the impatient.