On Friday the DOW made another new weekly low while both the S&P 500 and NASDAQ remained above their lows from the previous week, and all three indices closed strongly in the upper part of their day's range. This gives us a strong bullish divergence signal between these indices, and it is happening inside our strong reversal zone (Aug. 23 - Sept. 8). Although the DOW and S&P 500 have not yet touched our ideal targets (33,500 and 4,200, respectively), they (and the NASDAQ) have all penetrated well below their 45-day moving averages and have satisfied the requirements for a final medium-term cycle bottom. We may have just seen that bottom in the DOW on Friday, and the previous week's lows in the S&P 500 and NASDAQ may also have been cycle bottoms. While one, two, or even all three indices could fall further by Sept. 8, I think it would be prudent to take profits and cover our short position in this market right now. I am therefore going to to place an order to cover (unload) my short position in the broad stock market at the opening of the market tomorrow. We went short on July 21, so at this point we have a profit of almost 3% on the DOW (or more if one chose a leveraged index fund).
Another reason to cover our short position now is because we are looking to go long in this market once we are a little more confident that a final medium-term cycle bottom is in. Assuming the final bottom doesn't plummet too low over the next two weeks, we are fairly confident that another strong rally will follow that could end up testing the all-time highs in this market. (We should note, however, that if those highs are tested but not exceeded in ALL THREE indices, it will be "look out below" for a potentially very strong correction to follow.)