Last week both the DOW and S&P 500 broke their Oct. 29 lows while the NASDAQ held above its low from Nov. 20. This created a bullish divergence signal. That bullish signal is now being negated as today's dive in equities is pushing the NASDAQ below its Nov. 20 low. This is a very bearish sign as it suggests that the DOW and S&P 500 did indeed start new medium-term cycles on Oct. 29 but those cycles have now turned bearish and will continue lower for another 7 - 16 weeks. If this is the case, we should be looking to sell this market short at the top of any minor sub-cycle rally. We may see such a bounce soon if these indices find a stable support level this week or next (there is a minor reversal zone from Dec. 17 - Dec. 27 which could produce a turning point). We will watch for this. Note that the Federal Reserve will decide this week to raise or not raise interest rates. A decision to hold off a rate hike could boost equity markets.
An alternative scenario is the still viable (but now less likely) idea that the DOW and S&P 500 did not start new cycles on Oct. 29 but instead are completing their final moves down to the bottoms of older cycles that should be completed within the next three weeks. That would also be bearish, but for a much shorter period of time (1-3 weeks instead of 7-16 weeks); however, in that case the drop could be fast and steep.
OK, all these cycle possibilities may be a bit confusing, but our trading strategy is fairly straightforward. We will now watch for a short-term bounce and top to sell short (in a new cycle) for a possible long ride down into early 2019. If instead this market plunges quickly and steeply to the bottom of an older cycle over the next few weeks, we will look to go long at the end of that cycle (and the start of a new one) as a strong rally could follow. Once we see which scenario is going to play out, I will discuss what I anticipate longer-term for this market into next year. (Hint: I am anticipating a major correction in this market soon). Still on the sidelines of this crazy and volatile market.