It is very possible that the broad stock market low on Oct. 29 was the final bottom to a medium-term cycle and the start of a new one. Last week's strong rally supports this idea, and if it is true, this rally will go a lot higher. We need to note, however, that the DOW's rally lost some steam by the end of the week and closed below a strong resistance around 25,400. It is therefore also still possible that the Oct. 29 low was not the cycle bottom and that this market will turn back down shortly and complete a lower cycle bottom in one of our upcoming reversal zones near Nov. 7-8, Nov. 16 or Nov. 30. That first reversal point is coming up this week, and the market is rising. It is therefore likely we will see a top over the next few days and some sort of correction. If we are in a new medium-term cycle, that correction shouldn't go below the Oct. 29 low (24,122 in the DOW) before the market resumes its rally to a new all-time high. But if we have an older cycle that is still bottoming, the correction will break that Oct. 29 low and likely plunge considerably lower.
This week's mid-term elections in the U.S. (Nov. 6) will likely influence which scenario (bullish new cycle or bearish old cycle) will unfold from here. Although it is very difficult to predict how markets will react, I am going to venture a guess that a Democrat (i.e. anti-Trump) victory could push the market into the bearish scenario. I am simply basing this on the idea that "Trumphoria" energy has been driving the strong rally following the 2016 election. Alternatively, a Republican (pro-Trump) victory might further energize the current rally and push this market into the bullish scenario described above (i.e. more rallying to new highs with some minor corrective dips). Of course, my speculation here could be totally wrong. We will find out soon enough after Tuesday. I may decide to cover my current short position in the broad stock market tomorrow and stand aside until we can observe the effects of the election results. Stay tuned for a possible trade alert. Holding my short position for now.