This week the S&P 500 and NASDAQ are making new highs, but the DOW is not (so far) which is giving us an intermarket bearish divergence signal. We are also now in our new reversal zone (Jan. 22 - 29) so there is a good chance the broad stock market is going to turn down here. This is encouraging as we are still holding our short position in the NASDAQ or other broad stock market index. Nevertheless, we shouldn't underestimate the amazing buoyancy of equities right now. President Trump (and Wall Street) appear to be shrugging off the impeachment trial, and investors seem pleased with the first phase of the U.S./China trade deal - all of which lend a bullish thrust to equity markets. One bearish force on the markets over the last few days has also been from China - the news of a mysterious and deadly new corona virus that seems to be spreading rapidly in that country and has now been detected in the U.S. This alarming news story could linger and give the jitters to an already nervous and overbought stock market.
We will continue to keep a sharp eye on this market. If the DOW does manage to make a new high tomorrow, we still have the possibility of a bearish divergence signal early next week within our reversal zone. As I've mentioned in earlier blogs, a top and significant correction in the broad stock market is now due (overdue). Let's stay short in this market for now with a stop loss based on the DOW making a new high, especially if it happens next week.