The broad stock market is still looking very ambiguous, although we are just now getting some short-term bullish signals in the charts of the DOW, S&P 500, and especially the NASDAQ. I suspect this market is going to rise into the next reversal zone (which we enter in the second half of next week and is centered around Sept. 8-11) even though it is still possible for it to fall into a low in that time frame. There are basically two possible scenarios here:
1) The Aug. 21 lows in the DOW, S&P 500 and NASDAQ could represent a final medium-term cycle bottom, and this market could turn very bullish and now make new highs. The main argument against this is that those lows were not low enough for a "normal" bottom, and there was no bullish divergence signal at those bottoms.
2) The Aug. 21 lows could be just a sub-cycle bottom and we are now seeing a short-term rally that will soon turn down again and complete the final cycle bottom at significantly lower levels. This rally may or may not make new-all-time highs before turning down.
Both of these scenarios allow for a rise into the upcoming reversal zone. We are now back up to our entry point for our short position in the broad stock market. If this market is turning bullish, it could push quite a bit higher before Sept. 8-11. For this reason, I am going to cover my short position today with essentially no loss and stand aside to see how this plays out next week. If we rally into Sept. 8-11 (and especially if one or two- but not all three- market indices make(s) a new all-time high), we will consider selling short again as a significant correction in the market could still be imminent.