UPDATES ON THE BROAD STOCK MARKET and CRUDE OIL (11:30 pm EDT)
The broad stock market continues to give us mixed signals as to its short-term trend. In last Thursday's blog I wrote:
"All three of our broad stock market indices (DOW, S&P 500, NASDAQ) started new medium-term cycles with their lows in mid-April and are relatively young. After rising from there to new all-time highs on May 20 (DOW), May 23 (S&P 500), and May 28 (NASDAQ), these indices made their first sub-cycle correction with lows on May 30 (DOW) and May 31 (S&P 500 and NASDAQ).The DOW's correction was considerably longer and steeper than those for the S&P 500 and NASDAQ, and because of that the DOW's subsequent rally is still well below it's all-time high from May 20 (40,077). The S&P 500 and NASDAQ, however, are pushing ahead with new all-time highs. This means we now have a very strong case of intermarket bearish divergence between these indices, and it is happening as we rally into a strong reversal zone.
Unless the DOW can surge higher very quickly to a new all-time high, it looks like this market's trend could be turning bearish. The DOW still has not broken above its 15-day moving average and would need to climb over 1000 points to clear its 40,077 all-time high. It seems unlikely this will happen by the end of next week (the end of our reversal zone). A more likely scenario would see the DOW topping out sometime inside our reversal zone BELOW its 40,077 high and then turning down (with the other two indices) for another correction. If that happens, the DOW's medium-term cycle would be turning bearish, and it may lead the S&P 500 and NASDAQ into a bearish sell-off."
Well, despite yesterday's attempt to break above the 15-day moving average, the DOW closed back below it today, and this index is still well below its May high (40,077) while the S&P 500 and NASDAQ continue to soar above their May highs. Thus our strong bearish divergence signal remains intact, and tomorrow is the last day in our reversal zone. A correction down seems imminent for all three indices. This could be bearish for the DOW if the correction goes below the start of the current medium-term cycle (37,611 on April 17). The DOW is not far from there, so this is quite possible. The S&P 500 and NASDAQ, however, are far above the start of their cycles on April 19, so it seems unlikely they will turn bearish.
As I mentioned in my last blog, we are expecting a long-term (4 year) cycle to end by the end of this year with a steep 16 - 26% correction. It is not unusual to get a strong rally - even a "blow-off" top - just before such a dramatic correction. If the DOW manages to stay above 37,611 and not turn bearish, we may consider going long at some point over the next several weeks to ride what may be a strong rally that could take the DOW as high as 44,000 and the S&P 500 to 5,800 over the summer. After that (if it happens), however, it would be "look out below" for a 16-26% correction. Let's stay on the sidelines of this market for now as we watch for a reversal from a top no later than Friday.
Crude oil may have made its final medium-term cycle bottom on June 4 at $72.48 (July contract chart), but that low was not inside any reversal zone, which we like to see at the bottom of a cycle. Another thing that makes me uncomfortable is the fact that crude prices have rallied strongly into our current reversal zone (which ends tomorrow). A correction may already be in progress from Wednesday's high ($79.32 - near the 45-day moving average). Let's see how far this correction goes. If it stays above $72.48, we may have to acknowledge that low as the start of the new cycle, and we would then be looking to buy. For now, we are staying on the sidelines of crude oil.
The broad stock market continues to give us mixed signals as to its short-term trend. In last Thursday's blog I wrote:
"All three of our broad stock market indices (DOW, S&P 500, NASDAQ) started new medium-term cycles with their lows in mid-April and are relatively young. After rising from there to new all-time highs on May 20 (DOW), May 23 (S&P 500), and May 28 (NASDAQ), these indices made their first sub-cycle correction with lows on May 30 (DOW) and May 31 (S&P 500 and NASDAQ).The DOW's correction was considerably longer and steeper than those for the S&P 500 and NASDAQ, and because of that the DOW's subsequent rally is still well below it's all-time high from May 20 (40,077). The S&P 500 and NASDAQ, however, are pushing ahead with new all-time highs. This means we now have a very strong case of intermarket bearish divergence between these indices, and it is happening as we rally into a strong reversal zone.
Unless the DOW can surge higher very quickly to a new all-time high, it looks like this market's trend could be turning bearish. The DOW still has not broken above its 15-day moving average and would need to climb over 1000 points to clear its 40,077 all-time high. It seems unlikely this will happen by the end of next week (the end of our reversal zone). A more likely scenario would see the DOW topping out sometime inside our reversal zone BELOW its 40,077 high and then turning down (with the other two indices) for another correction. If that happens, the DOW's medium-term cycle would be turning bearish, and it may lead the S&P 500 and NASDAQ into a bearish sell-off."
Well, despite yesterday's attempt to break above the 15-day moving average, the DOW closed back below it today, and this index is still well below its May high (40,077) while the S&P 500 and NASDAQ continue to soar above their May highs. Thus our strong bearish divergence signal remains intact, and tomorrow is the last day in our reversal zone. A correction down seems imminent for all three indices. This could be bearish for the DOW if the correction goes below the start of the current medium-term cycle (37,611 on April 17). The DOW is not far from there, so this is quite possible. The S&P 500 and NASDAQ, however, are far above the start of their cycles on April 19, so it seems unlikely they will turn bearish.
As I mentioned in my last blog, we are expecting a long-term (4 year) cycle to end by the end of this year with a steep 16 - 26% correction. It is not unusual to get a strong rally - even a "blow-off" top - just before such a dramatic correction. If the DOW manages to stay above 37,611 and not turn bearish, we may consider going long at some point over the next several weeks to ride what may be a strong rally that could take the DOW as high as 44,000 and the S&P 500 to 5,800 over the summer. After that (if it happens), however, it would be "look out below" for a 16-26% correction. Let's stay on the sidelines of this market for now as we watch for a reversal from a top no later than Friday.
Crude oil may have made its final medium-term cycle bottom on June 4 at $72.48 (July contract chart), but that low was not inside any reversal zone, which we like to see at the bottom of a cycle. Another thing that makes me uncomfortable is the fact that crude prices have rallied strongly into our current reversal zone (which ends tomorrow). A correction may already be in progress from Wednesday's high ($79.32 - near the 45-day moving average). Let's see how far this correction goes. If it stays above $72.48, we may have to acknowledge that low as the start of the new cycle, and we would then be looking to buy. For now, we are staying on the sidelines of crude oil.
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