Today the Federal Reserve dished out some more dovish rhetoric to Wall Street and the general public, presumably to keep the country's severely overbought equity markets buoyant in these uncertain times. In a highly anticipated speech, Fed Chairman Jerome Powell announced that the Fed may continue efforts to prop up the economy even if inflation rises above its target level of 2%, In other words, bond buying and near-zero interest rates could continue for some time. Will the Fed's dovish policies be enough to keep the broad stock market from taking a major correction or prevent a "crash"? Probably not, but it might delay one. The massive bubble in equity markets that we are witnessing now has taken some time to grow and is not going to go away with the simple wave of a "magic wand" from the Federal Reserve.
Despite the Fed's announcement, equity markets were still jittery and indecisive in their direction today. All three stock market indices (DOW, S&P 500, NASDAQ) made new weekly highs, but again, only the S&P 500 and NASDAQ made new ALL-TIME highs. The DOW is still below its 29,568 all-time high from February, and thus our intermarket bearish divergence signal is still valid. We are fairly certain that we are nearing the end of a medium-term cycle in the NASDAQ (the other two indices MAY be younger) so we are watching for a top to sell short in that index. We are now in a new reversal zone (Aug. 25 - Sept. 3), but still no strong technical signs of a top. Today's Fed speech could help kick these indices higher into next week, but because the speech's dovish tone was highly expected, we may see a case of "buy the rumor, sell the news" unfold here with a sell-off. We will wait and see. If the market does push higher into next week, we may get a WEEKLY bearish divergence signal if one or two (but not all three) indices make a new high. That could give us a good spot to sell (short) again. Still on the sidelines of the broad stock market.