MarketMood Tuesday: Crisis in the Making

Where We've Been: 

MMI was looking for a gap down at futures open on Sunday, then a turning up prior to RTH open.  We got that pattern, even though the market opened slightly down this morning.  Today we were watching for a possible flip from up to down which would be up first (got that), followed by a period of ambiguity then turning down.  The ambiguity was there, but no definitive turning down.  Because of the false positive signals for flips inherent in diagonals, I'm requiring a confirmation from the market before accepting that an inversion has occurred.

Where We're Going

Tuesday is likely to complete the flip from up to down we were watching for on Monday.  Ideally, this would be up first, some ambiguity, then turning down prior to close.  Regardless, a near unchanged close on Tuesday or Wednesday will invalidate the flip going forward.  Thursday is a possible big move day, so it would be great if signal polarity and likely market direction can be settled before then.

For the next two days, without the flip the mood pattern is a mix of bullish market trend and "crisis / disaster."   With the flip, the mood pattern turns to a sense of "victimization."  Either way, the next day or two could be critical to the larger context.  For more info, see "For the Extremely Curious" section below.

MMI Tuesday: flip from up to down (alt case, just up)

MarketMood Data Info:

Internet search theme MMI inputs: man, international, star, death, remembered, president, celebration, controversy, accusation, sex, assault

Next 3 Days:

     Date        Daily MMI MMI 2*
6/23  flip up to down?   -
6/24  ?   -
6/25  close down   - 

*MMI 2 uses an alternate dynamic algorithm to convert the same sentiment source data to S&P direction as the original MMI algorithm.


The Moving Average Momentum (MAM) Indicator's previous major low signal was 24-31 Dec., 2018.  The market rallied strongly following the close on Dec. 24 which fulfilled the major low signal.  The last major high signal was 8-27 Jan. 2020 (possibly the longest window ever).  The closing high on 17 Jan. appeared to have fulfilled that, as the market dropped over 100 points following this window.  Yet, the market quickly recovered its losses and made a new high.  However, with that being the first major trend change signal in over a year, we needed to take seriously that it was pointing to something very different happening in both mood and market.  The rest is history.

Current status: neutral.

Intermediate Term Forecast:

The weekly price charts show what is still a highly overbought market in need of correction, and is pointing down through about 13 July.  Weekly trend indicators show a strong bullish trend.  Monthly charts point primarily up through August, yet quarterly charts show a drop into end of year.  Perhaps the reconciliation of this is the nearly flat sentiment showing in the weekly charts hovering around the 2600 SPX area.  All together this projects a general trading environment of chop and /or whipsaw.  Trends may seem to be solid, then change at a moment's notice.  Note: If the month of June closes nearly unchanged, then monthly charts will turn down for July-August.

MM MACD signal is confirmed SELL and the intermediate trend is DOWN.  The swing trade signal is SELL at or below 2998 SPX.  For the system trade, if the trade is triggered, the market must close below 2998 or trade is exited at close.

The MM MACD is similar to a standard MACD, except that it uses the MMI signal data to extend several days beyond today, while the standard MACD relies solely on historical market data.   

The table below shows hypothetical trade results for strictly following the MM MACD signal vs. using the system suggested stop.  Using the stop method may involve multiple trades per signal.  Future results may vary.

          Date  Signal  @SPX Signal P/L System P/L Net Gain Signal Net Gain System
03-Jan-20   SELL 3231        
08-Jan-20   NEU   -48.48 -28.73 -48.48 -28.73
20-Jan-20   SELL 3317        
05-Feb-20   NEU   -28.31 56.05 -76.79 27.32
12-Feb-20   SELL 3375        
 27-Feb-20   NEU   391.74 212.69 314.95 389.25
 14-Apr-20   SELL     2778        
18-May-20   NEU      -175.91 -102.11 139.04 287.14
27-May-20   S/N    2988 -48.13 -16 90.91 271.14
12-Jun-20   SELL    2998        
         -119.86* -116.14 -28.95* 155.00

*indicates hypothetical trades for the current signal still in progress

Long Term Forecast:

The long term trend is indicated by the general divergence between the stock market and the mood generated forecast (see long term chart below).  The MM Long Term Trend Indicator (bottom chart) which is derived from this divergence, indicates: "Neutral Trend, exit long-term positions."  The MM LTTI has had this indication since 11 Jun 2020  See further LTTI data below the chart.

The MM LTTI measures trend strength using the divergence between the market trend and the forecast trend. 

The table below provides data from the last few Long Term Trend Indicator's signals.  It also compares a hypothetical trade using this indicator with the S&P 500's return during the same period.  Future results may vary.

        Date   Days Signal SPX Close Market pts Points P/L Net gain SPX      Net P/L
8-Feb-19 1   BUY 2707.88        
10-Feb-19 2   NEU 2712.40 4.52 4.52 4.52 4.52
12-Feb-19 2   BUY 2744.73 33.35   36.85  
31-Jan-20 353   NEU 3225.52 480.79 480.79 517.64 485.31
3-Feb-20 3   BUY 3248.92 23.4   541.04  
25-Feb-20 22   NEU 3128.21 -120.71 -120.71 420.33 364.60
27-Feb-20 2  SELL 2978.76 -149.45   270.88  
2-Mar-20 4   NEU 3090.23  111.47 -111.47 382.35 253.13
3-Mar-20 1  SELL 3003.37  -86.86   295.49  
4-Mar-20 1  NEU 3130.12 126.75 -126.75 422.24 126.38
5-Mar-20 1  SELL 3023.94 -106.18   316.06  
10-Mar-20 5  NEU 2882.23 -141.71 141.71 174.35 268.09
11-Mar-20 1  SELL 2741.38 -140.85   33.50  
6-Apr-20 26  NEU 2663.68 -77.70 77.70 -44.20 345.79
8-Apr-20 2  BUY 2749.98 86.3   42.10  
21-Apr-20 13  NEU 2736.49 -13.49 -13.49 28.61 332.30
22-Apr-20 1  BUY 2799.31 62.82   91.43  
11-Jun-20 50  NEU 3002.10 202.79 202.79 294.22 535.09

For the Extremely Curious:

We've been watching for a good parallel move of the orange and grey lines (Manic and Controlled) to signal a flip.  That's in progress now, so we will continue watching for this on Tuesday.  What's very interesting about this moment is that without the flip, Manic and Controlled so close together with Controlled on top point to a crisis or disaster.  With the flip, the cluster of Vulnerable/Manic/Controlled point to a sense of vulnerability or victimization.  Neither one of those sound bullish.  Without the flip however, high Expansive / low Vulnerable imply a bullish trend.  With the flip, high Expansive can be pointing to international concerns.  Putting that together with the victimization could be pointing to feeling attacked from an international source.  

Tomorrow's market mood and news themes: big decisions.

Tomorrow's trader context is: matters close to home, financial concerns

Recent Performance:

MMI's recent performance relative to a long term average of over 60% correct daily up or down calls indicates how closely it's been tracking with the market near term.   In the basic daily performance stats below, posted signal flip days aren't counted in the total as there is no call on those days as to a positive or negative close.  Monday open does count as a call unless it's part of a flip.  

Note: MMI does least well in these conditions-- 1) EW 4th wave, 2) EW b wave, 3) Diagonals, and 4) Topping.  More than one of these conditions concurrently present will further diminish performance.

This week so far: 0/1 (0%).  Up calls 0/1 (0%).  Down calls NA.
Last week: 3/5 (60%).  Up calls 2/3 (67%).  Down calls 1/2 (50%)
June so far: 7/13 (54%).  Up calls 4/8 (50%).  Down calls 3/5 (60%).
YTD: 35/64 (53%)

Conclusion: market tracking with sentiment on a day by day basis has been running way below average so far this year.  Recently, it's been tracking above the average for the current year's performance.


Note: Changes to next day MMI signals occur about 5% of the time, and will be announced in updates as well as the daily report should they occur.  Same day signals will not change.  Day 2 and 3 signals reflect the most current information, and are subject to change. The default trade per the daily signals is executed at market on close. except on Mondays, as there is a signal for Monday open (i.e. "weekend close") and Monday close.  The daily MMI signals are correct as daily direction calls about 63% of the time.  Please manage your trading risk accordingly.

Dr. Cari Bourette is an analyst at ElliottWaveTrader.net, where she provides her proprietary market mood analysis in our flagship service, "Avi's Market Alerts."