In Tuesday's post I wrote:
"My stop loss suggestion last week was 3,842, but now I would raise that a bit to 3,871, assuming the other two indices also make new all-time highs."
Well, today the S&P 500 closed at 3,871.74 - just a hair above our stop loss. The broad stock market rallied strongly with both the S&P 500 and NASDAQ making new all-time highs. Significantly, however, the DOW remained below its all-time high of 31,273 - but it is getting close.
OK, some traders may now be stopped out of their short position in the S&P 500, but some may still be short as the DOW is still below its all-time high (bearish divergence). If the DOW does make a new high tomorrow or early next week, all short positions should be closed. Should the DOW remain below 31,273 into the first half of next week, our bearish divergence signal would remain in force, and I would hold (or possibly re-enter) my short position as a reversal could (should) be imminent. All three indices making new highs after Wednesday of next week would suggest the medium-term cycle tops for these indices are not in yet and would likely happen later in the month (as they are now overdue).
Bottom line: If still short, hold that short position with a stop loss based on the DOW breaking above its all-time high
(31,273). If already stopped out, stay on the sidelines tomorrow. If the DOW stays under its all-time high early next week, consider going short again.