UPDATE ON THE BROAD STOCK MARKET (11:00 pm EDST) [MONTHLY OVERVIEW]
In our last reversal zone (Sept. 30 - Oct. 6), the broad stock market made TWO reversals - a bottom on Sept. 30 and a top on Oct. 5. This demonstrates just how volatile this market is right now. In all three of our major indices (DOW, S&P 500, NASDAQ), there was a "gap-up" on Oct. 4 and a "gap-down" on Oct. 7. This created what is called a "bearish island reversal" chart formation. Yesterday and today, the DOW surged and closed that gap from Oct. 7, which negates this bearish signal for that index. Nevertheless, it persists in the S&P 500 and NASDAQ as their gaps have not closed (yet). Again, this shows how indecisive and volatile this market is at the moment. We also note that we have now entered another general reversal zone Oct. 12 - 28 (with "pivot points" around Oct. 17 and Oct. 24), so we could see more volatility with a significant top or bottom (or both) within this time frame. Let's turn to our cycle analysis to try and make some sense of all this.
We usually focus on medium-term cycles for trading (that would be around 13 -23 weeks for the DOW and S&P 500). The DOW and S&P 500 are most likely in the 17th week of their current medium-term cycles. This means they are old and could make a final bottom anytime now. The DOW may have already done that with its low of 28,716 on Sept. 30. Supporting this idea is the fact that the DOW made a "double-bottom" to that low yesterday and is rallying very strongly from there and closing it's previous "gap-down" as mentioned above. The S&P 500, however, broke well below its Sept 30 low (3,585) yesterday and has not yet closed its "gap-down" space from Oct.7 (ditto for the NASDAQ). We thus have mixed signals (bullish - DOW, and bearish - S&P 500 and NASDAQ) in these markets right now. The DOW could be ending its old medium-term cycle and starting a new one with this week's double-bottom along with the new lows in the S&P 500 and NASDAQ (bullish divergence). The alternative view would be that one, two, or all three indices could be headed lower to make their final bottoms over the next several weeks. This ambiguity in our cycle analysis (yes, it is very confusing) will keep us on the sidelines of trading for now, but we will be open to some short-term trading - especially if we see significant highs or lows around Oct. 24 and Nov. 7 (the center of another reversal zone Nov. 2 -10).
In our longer-term perspective of equity markets, we are still holding to the idea that a major long-term 90 year cycle most likely topped out with the all-time highs in January this year in the DOW and S&P 500 (and in November 2021 in the NASDAQ). From this perspective, the market has already started a multiyear correction that will take it much lower. But such a severe correction (crash) usually moves down in waves, and there could be significant corrective rallies along the way. I don't think any rallies now will challenge, let alone exceed, those all-time highs from January (2022) and November (2021), but that scenario still cannot be completely ruled out. If this market keeps making new highs after mid-November, we might see new all-time highs and a 90-year cycle crash aborted. For now, we will consider that to be very unlikely.
I will update crude oil and the precious metals over the week-end.
In our last reversal zone (Sept. 30 - Oct. 6), the broad stock market made TWO reversals - a bottom on Sept. 30 and a top on Oct. 5. This demonstrates just how volatile this market is right now. In all three of our major indices (DOW, S&P 500, NASDAQ), there was a "gap-up" on Oct. 4 and a "gap-down" on Oct. 7. This created what is called a "bearish island reversal" chart formation. Yesterday and today, the DOW surged and closed that gap from Oct. 7, which negates this bearish signal for that index. Nevertheless, it persists in the S&P 500 and NASDAQ as their gaps have not closed (yet). Again, this shows how indecisive and volatile this market is at the moment. We also note that we have now entered another general reversal zone Oct. 12 - 28 (with "pivot points" around Oct. 17 and Oct. 24), so we could see more volatility with a significant top or bottom (or both) within this time frame. Let's turn to our cycle analysis to try and make some sense of all this.
We usually focus on medium-term cycles for trading (that would be around 13 -23 weeks for the DOW and S&P 500). The DOW and S&P 500 are most likely in the 17th week of their current medium-term cycles. This means they are old and could make a final bottom anytime now. The DOW may have already done that with its low of 28,716 on Sept. 30. Supporting this idea is the fact that the DOW made a "double-bottom" to that low yesterday and is rallying very strongly from there and closing it's previous "gap-down" as mentioned above. The S&P 500, however, broke well below its Sept 30 low (3,585) yesterday and has not yet closed its "gap-down" space from Oct.7 (ditto for the NASDAQ). We thus have mixed signals (bullish - DOW, and bearish - S&P 500 and NASDAQ) in these markets right now. The DOW could be ending its old medium-term cycle and starting a new one with this week's double-bottom along with the new lows in the S&P 500 and NASDAQ (bullish divergence). The alternative view would be that one, two, or all three indices could be headed lower to make their final bottoms over the next several weeks. This ambiguity in our cycle analysis (yes, it is very confusing) will keep us on the sidelines of trading for now, but we will be open to some short-term trading - especially if we see significant highs or lows around Oct. 24 and Nov. 7 (the center of another reversal zone Nov. 2 -10).
In our longer-term perspective of equity markets, we are still holding to the idea that a major long-term 90 year cycle most likely topped out with the all-time highs in January this year in the DOW and S&P 500 (and in November 2021 in the NASDAQ). From this perspective, the market has already started a multiyear correction that will take it much lower. But such a severe correction (crash) usually moves down in waves, and there could be significant corrective rallies along the way. I don't think any rallies now will challenge, let alone exceed, those all-time highs from January (2022) and November (2021), but that scenario still cannot be completely ruled out. If this market keeps making new highs after mid-November, we might see new all-time highs and a 90-year cycle crash aborted. For now, we will consider that to be very unlikely.
I will update crude oil and the precious metals over the week-end.
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