MarketMood Wednesday: Pullback soon, but still Bullish for the Moment

Where We've Been: 

Today's mood pattern usually points to crises or disasters and can also relate to either positive or negative government news.  There was continuing Covid news today including a U.S. government announcement around mask guidance.  There are potential "disasters" in the form of severe thunderstorms / hail / tornadoes this evening in some parts of the country.  Today's MMI is down, however caution was advised due the potential for government news in either direction to move the markets for at least a moment.  The market closed just below unchanged.

Where We're Heading: 

Tomorrow's mood pattern implies continuation which is down, but also a bullish exhaustion which means bulls could try hard for a rally first.  MMI is down through end of week.

There is a MAM short term bearish trend change signal for 28 April - 5 May.   The overall trend remains bullish for now, and below 4178 SPX a temporary pullback will be in play.  

Internet search theme source data for MMI inputs: fight, sports

Next 3 Days:

Date         Daily MMI   MMI 2* 
 4/28 Down  -
 4/29 Down  -
 4/30 Down  -

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

MM Indicators and Trading Parameters Summary:

IndicatorScope Direction
LTTILonger Term Trend Bullish
MMTT (main) Medium Term Trend Bullish
MMTT (HP)Medium Term Trend Bullish 
MMTT (b/b)Near Term bull/bear Trend Line 4178 SPX
MM MACDSwing Trade Neutral 
MMI Next calculated daily sentiment bias Down

Note: Medium term is roughly 1 week to 2 months.  Longer term is roughly 1 month to 1 year.

Shorter Term MarketMood Indicator vs. S&P 500 Charts:

The Moving Average Momentum (MAM): It's been quite a long time since there was a normal major high or low signal. the indicator's last major low signal was 24-31 Dec., 2018.  The market rallied strongly following the close on Dec. 24 which fulfilled the major low signal.  There was an ambiguous low signal from 20-27 Mar. 2020.  It was a combo major low and minor high in the same region.  The market did make a substantial low in that time-frame.  The last major high signal prior to March of this year was 8-27 Jan. 2020 (possibly the longest window ever).  The closing high in that window was 3330 on the 17th then again 3326 on the 23rd.  The S&P 500 dropped about 100 points from there through end of month, which was the largest drop in some time.  The market then rallied through February 19th to 3386, 60 points above the last high.  That was the actual high point, about 3 weeks past this 3 week window.  It most definitely was a major high point as it was followed by a steep drop of almost 1000 points before a closing low on March 23, 2020.  The most recent major high signal was 10-17 March.  The closing high on March 17th was followed by a decline of less than two weeks which was highly unusual for a major high/low signal.  

New Signal: Short term bearish trend change likely April 28 - May 5.

Current status: neutral

Intermediate Term Forecast:

There are two primary scenarios for April-June.  With March closing on a high note, the most likely one involves a new global or geopolitical crisis (or a new round of a familiar one), with the market in a topping process and then finally dropping.  Until a top is confirmed, expect the process to continue and the market to keep on meandering up.  More details are available in the post describing Two Spring Scenarios.

MarketMood Trend Trader

The chart below uses three sentiment trend lines to generate a swing trade signal of BUY if 2 out of 3 are greater than 0 and SELL if 2 out of 3 are less than 0.  Trade length averages 9 days, but can be as short as 1 and has been as long as 60.  The signal is updated each day after market close.  Back-testing shows this signal averaging about 12 SPX points per trade over the last few years.  Back-testing a higher probability signal derived only from the two mood related trend lines averages 33 SPX points per trade, but only initiates trades about once every 3 weeks.  Note: past performance does not guarantee future results.

Current signal: BUY since 26 Mar. HP signal: BUY since 26 Apr. AM

MM MACD signal is SELL and the intermediate trend is UP.  There is no swing trade signal.

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.   

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: "Bullish Trend, hold long long-term positions."  The MM LTTI has had this indication since 4 Nov 2020.  

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

For the Extremely Curious:

In normal mode, the top of the mood chart is primary, and in inverted mode the bottom of the chart is.  Normal mode is currently assumed to be in effect.  

Tomorrow's market mood and news themes: pushing agendas forward

Tomorrow's trader context is: shifting situations

Limitations:

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.


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.  Historical data implies that the daily MMI signals tend to be correct as daily direction calls about 63% of the time over the long term.

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."