BROAD STOCK MARKET UPDATE (9:00 pm EDT)
Today was the next to the last day of a minor reversal zone (Jan. 5-11) which ends tomorrow. All three major equity indices (DOW, S&P 500, NASDAQ) dropped significantly early today but then snapped back up dramatically to recover most of their losses by the end of the day. A reversal could be happening here, but how significant will it be? Tomorrow we enter a much stronger reversal zone (Jan. 11 - 20). It's possible we could now see equities rally to a top in this new reversal zone, but if today's reversal doesn't gain any momentum (it's within a WEAK reversal zone), these indices could turn right back down and plunge further into a bottom within the time window of this new strong reversal zone. Right now the DOW and S&P 500 are POTENTIALLY poised for a strong rally back up, but the NASDAQ's chart is definitely looking more bearish. Let's examine these individually.
The NASDAQ's current medium-term cycle began with its low of 14,181 on Oct. 4. This cycle most likely made its final top on Nov. 22 at 16,212 and is now in its late stage of moving down to its final cycle bottom due 5-9 weeks from now (although it could contract and bottom earlier). The low of 14,860 on Dec. 20 was a significant mid-point sub-cycle corrective low. Today the NASDAQ broke below this low and touched 14,530 before closing back above 14,860. This strongly suggests that the trend is now bearish and that the NASDAQ will continue lower until it reaches its final bottom. A good target for that bottom would be at least 14,181, and probably lower. One thing that could negate this scenario would be the DOW and S&P 500 suddenly turning bullish now and pulling the NASDAQ up into a strong rally. This doesn't seem likely because today is a little too early for the NASDAQ's medium-term cycle to bottom, but sometimes cycles can contract and bottom early, so it is a possibility. The NASDAQ breaking and closing above 15,000 could be a warning that this is happening, so we will watch this index carefully over the next few days. In the meantime, we will hold on to our short position in the NASDAQ.
The DOW, like the NASDAQ, could also be an old medium-term cycle ready to fall to it's final bottom. Unlike the NASDAQ, however, the DOW's cycle trend is still bullish and pointed up, and this means it could still make a new all-time high before falling to the final cycle bottom (due 2-5 weeks from now). Today the DOW fell to 35,634 which is in our range for a normal sub-cycle correction. It then snapped back sharply and closed at 36,069. This index could now begin a rally towards a new-all-time high (i.e. above 36,953). There is also a possibility the DOW started a new medium-term cycle on Dec. 1 with its low of 34,007. If that's the case, this index could be very bullish, but it would still have to take out 36,953 to confirm that. Let's remain on the sidelines of this index for now.
The S&P 500 is most likely an old medium-term cycle (like the NASDAQ) and could have made its final cycle top already with last week's high at 4,819. If so, it is now falling to its final cycle low due 2-6 weeks from now. But, like the DOW, this index could still push higher to a new all-time high before falling to the final cycle low. Today the S&P 500 fell a bit below 4,600 and then bounced strongly off of that. That was a good target for a sub-cycle correction, so this index could rally now. We will stay on the sidelines of this index for now.
OK...I realize all this analysis is a bit confusing. The bottom line here is that we have a conflict in equities now between the NASDAQ, which appears very bearish, and the DOW and S&P 500, which appear more bullish. There are two possibilities here:
1) The NASDAQ's bearish trend could prevail, and after a brief bounce, all three indices could continue down.
2) The DOW and S&P 500 could rally strongly now to a top in our new reversal zone (Jan. 11 - 20) and pull the NASDAQ up to a new all-time high (or at least to challenge its Dec. high of 15,901).
We currently have an almost 5% profit over the last six trading days on our short NASDAQ position. If the bullish scenario seems likely over the next few days, we will cover this position and take profits. Otherwise, we will hold our short position and ride it down to the final bottom in the NASDAQ's current medium-term cycle (due 5-9 weeks from now).
Today was the next to the last day of a minor reversal zone (Jan. 5-11) which ends tomorrow. All three major equity indices (DOW, S&P 500, NASDAQ) dropped significantly early today but then snapped back up dramatically to recover most of their losses by the end of the day. A reversal could be happening here, but how significant will it be? Tomorrow we enter a much stronger reversal zone (Jan. 11 - 20). It's possible we could now see equities rally to a top in this new reversal zone, but if today's reversal doesn't gain any momentum (it's within a WEAK reversal zone), these indices could turn right back down and plunge further into a bottom within the time window of this new strong reversal zone. Right now the DOW and S&P 500 are POTENTIALLY poised for a strong rally back up, but the NASDAQ's chart is definitely looking more bearish. Let's examine these individually.
The NASDAQ's current medium-term cycle began with its low of 14,181 on Oct. 4. This cycle most likely made its final top on Nov. 22 at 16,212 and is now in its late stage of moving down to its final cycle bottom due 5-9 weeks from now (although it could contract and bottom earlier). The low of 14,860 on Dec. 20 was a significant mid-point sub-cycle corrective low. Today the NASDAQ broke below this low and touched 14,530 before closing back above 14,860. This strongly suggests that the trend is now bearish and that the NASDAQ will continue lower until it reaches its final bottom. A good target for that bottom would be at least 14,181, and probably lower. One thing that could negate this scenario would be the DOW and S&P 500 suddenly turning bullish now and pulling the NASDAQ up into a strong rally. This doesn't seem likely because today is a little too early for the NASDAQ's medium-term cycle to bottom, but sometimes cycles can contract and bottom early, so it is a possibility. The NASDAQ breaking and closing above 15,000 could be a warning that this is happening, so we will watch this index carefully over the next few days. In the meantime, we will hold on to our short position in the NASDAQ.
The DOW, like the NASDAQ, could also be an old medium-term cycle ready to fall to it's final bottom. Unlike the NASDAQ, however, the DOW's cycle trend is still bullish and pointed up, and this means it could still make a new all-time high before falling to the final cycle bottom (due 2-5 weeks from now). Today the DOW fell to 35,634 which is in our range for a normal sub-cycle correction. It then snapped back sharply and closed at 36,069. This index could now begin a rally towards a new-all-time high (i.e. above 36,953). There is also a possibility the DOW started a new medium-term cycle on Dec. 1 with its low of 34,007. If that's the case, this index could be very bullish, but it would still have to take out 36,953 to confirm that. Let's remain on the sidelines of this index for now.
The S&P 500 is most likely an old medium-term cycle (like the NASDAQ) and could have made its final cycle top already with last week's high at 4,819. If so, it is now falling to its final cycle low due 2-6 weeks from now. But, like the DOW, this index could still push higher to a new all-time high before falling to the final cycle low. Today the S&P 500 fell a bit below 4,600 and then bounced strongly off of that. That was a good target for a sub-cycle correction, so this index could rally now. We will stay on the sidelines of this index for now.
OK...I realize all this analysis is a bit confusing. The bottom line here is that we have a conflict in equities now between the NASDAQ, which appears very bearish, and the DOW and S&P 500, which appear more bullish. There are two possibilities here:
1) The NASDAQ's bearish trend could prevail, and after a brief bounce, all three indices could continue down.
2) The DOW and S&P 500 could rally strongly now to a top in our new reversal zone (Jan. 11 - 20) and pull the NASDAQ up to a new all-time high (or at least to challenge its Dec. high of 15,901).
We currently have an almost 5% profit over the last six trading days on our short NASDAQ position. If the bullish scenario seems likely over the next few days, we will cover this position and take profits. Otherwise, we will hold our short position and ride it down to the final bottom in the NASDAQ's current medium-term cycle (due 5-9 weeks from now).
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