In Tuesday's blog I wrote : "...if the DOW breaks below last Friday's low of 17,279, we will have to abandon the idea of that being the start of a new cycle, and equity markets could be bearish for the next two months." It looks like this scenario is playing out. The DOW's plunge to 17,125 yesterday means that the current medium-term cycle probably started on July 7 at 17,465 and could now be pointing down for at least two more months. Directional momentum signals are also supporting this idea. The S&P 500 has changed from mixed bullish and bearish to mostly bearish and the NASDAQ has changed from 100% bullish to mixed bullish and bearish. The DOW remains 100% bearish. We should now be looking to sell short the broad stock market for a deeper correction. We are getting a relief rally in the markets today so I am going to take this opportunity to enter a short position. For those trading index funds, I would suggest an S&P 500 fund rather than a DOW fund as the DOW has already corrected nearly 5% from its all-time high. The S&P 500 is only down 2% from its all-time high and thus has more "fall" potential should the markets take a deeper correction. We can set a stop loss for this trade on a break over the 2115 level in the S&P 500 which would give us a tolerable 1% loss if breached.
Entering a short position in the broad stock market (S&P 500) today.