Yesterday and today the DOW made new weekly highs while the S&P 500 and NASDAQ remained below their highs from last week. We are thus getting another intermarket bearish divergence signal in the broad stock market. Even though the S&P 500 is very close to last week's high and could break through tomorrow or Friday, the NASDAQ is not likely to do so as it is a good distance from last week's high. As I stated in Monday's blog:
"The strength of the NASDAQ's fall today suggests a correction is starting in that index, but the DOW and S&P 500 are not falling as much. If the DOW and/or the S&P 500 can poke above last week's high(s) this week, we could get another bearish divergence signal that would give us another opportunity to sell short."
We are getting that signal now. There are several cycle, timing, and technical factors that still point to a significant correction now so I am going to again enter a short position in the broad stock market today. Traders using index funds should avoid short selling the NASDAQ and instead short sell funds tied to the DOW or S&P 500 as the NASDAQ's correction may already be underway. We can set a stop loss for this trade based on the S&P 500 and the NASDAQ both making new weekly highs, especially if that happens next week.
The Fed announced another interest rate hike after its meeting today which was expected by most analysts and investors. Equities fell sharply after the announcement but seem to be stabilizing at the time of this writing (3:15 pm EDT).