Cycle analysis is giving us two likely scenarios for equity markets right now, and both are bearish, one more so than the other. In the first (very bearish) scenario, the high for the current DOW cycle is in with the 18,137 high of July 20, and the broad stock market will continue down for at least eight more weeks. In the second scenario, last Friday's low in the DOW was the start of a new cycle and this index could now rally to challenge that July 20 high (and maybe even the all-time high of 18,351 on May 19) but would then turn down for a major correction of 10-15% (or more) by the end of the year. If either one of these scenarios is correct, our main strategy now should be to look for an ideal spot to sell short that major correction (which may have started already or is about to start from a new high).
As I anticipated in last night's blog, we are getting a strong bounce in the broad stock market today (the DOW is up 240 points as I write this at 3 pm EDT). This rally has brought the DOW back up to our buy price around 17,600 so
I am going to take this opportunity to sell my long position in the broad stock market at a break-even level (no loss) and stand aside. If the first scenario described above plays out, the markets will turn down again soon and we will look for a spot to sell short. If the second scenario plays out, we will wait for a new high (possibly at the end of this month) and sell short then. Selling my long position in the broad stock market today.