IMPORTANT UPDATE ON THE BROAD STOCK MARKET (10:00 pm EDT)
The current bullish rally in the broad stock market confirms that the Aug. 5 lows in all three market indices (DOW, S&P 500, NASDAQ) were the start of new medium-term cycles. This rally, however, may be cut short soon as a potential 4-year cycle top is now due from which a severe correction down would likely follow.
As we come to the end of one general reversal zone today, we enter another even stronger one tomorrow (Aug. 23 - Sept. 6). These back to back reversals are giving us a wide window of time that could contain more than one significant top or bottom. The broad stock market may be turning down today as all three market indices (DOW, S&P 500, NASDAQ) are encountering resistance lines in their charts. The DOW and S&P 500 could be forming "double-tops" near (but below) their recent mid-July all-time highs while the NASDAQ may be rolling over a good distance below its July all-time high. "Double-tops" are bearish formations, but we don't really have a bearish divergence signal until one or two (but not all three) index/indices makes a new all-time high or highs without the other/others. That could happen if the DOW and/or S&P 500 push higher into our next reversal zone.
We have been anticipating the top to a long-term 4-year cycle in equities by the end of this month. While that is still possible, the strong rally of these three indices from their recent Aug. 5 lows as well as several other technical signals are forcing us to consider an alternative scenario. If the 4-year cycle is in play, we still expect that top very soon followed by a 16% - 26% fall into the end of this year. But for reasons too complicated for discussion here, we may be dealing with a 6-year cycle instead of a 4-year one. If that is the case, this market would be much more bullish and could rally well above those July all-time highs (41,376 in the DOW, 5,670 in the S&P 500, and 18,671 in the NASDAQ) into the first half of next year.
I entered a short position in the DOW on Aug. 8 (around 39,500) expecting a bearish turning down of this market by the end of the month. That position is now about 2% - 3% in the red. If the market is turning down now, or even if the DOW and/or S&P 500 top out by next week and turn south, we should recover at least some of this loss, and possibly be back on track for significant profit if the 4-year cycle is playing out. For this bearish scenario to be valid, several support areas in the DOW need be broken:
1) The "gap-up" space between 40,000 and 40,300 needs to be closed. In other words, the DOW first needs to move down to 40,000 or below soon.
2) The 15-day and 45-day moving averages are now rising and converging just below 40,000, so this is now a strong line of support. The DOW needs to break below this level to be bearish.
3) There is another strong line of support just above the start of the current medium-term cycle around 39,000. If a 4-year cycle is indeed playing out, the DOW should break well below there soon and be on its way to a 16% - 26% correction.
OK, that's a LOT of support to break through to confirm the end of a 4-year cycle and our bearish strategy. It could happen, but I am going to play it safe here and probably look to cover my short DOW position if this index pauses near any of these support lines (i.e. 40,300, 40,000 and 39,000). If the market continues to rally, I will also unload my short position if ALL THREE indices make new all-time highs. (As I mentioned above, the DOW and S&P 500 are very close to their all-time highs and could edge higher and break those highs tomorrow or next week; but without the NASDAQ, this would give us a strong bearish divergence signal inside a strong reversal zone - increasing the chances of a downturn.)
For today I am still holding my short position in the DOW (broad stock market).
The current bullish rally in the broad stock market confirms that the Aug. 5 lows in all three market indices (DOW, S&P 500, NASDAQ) were the start of new medium-term cycles. This rally, however, may be cut short soon as a potential 4-year cycle top is now due from which a severe correction down would likely follow.
As we come to the end of one general reversal zone today, we enter another even stronger one tomorrow (Aug. 23 - Sept. 6). These back to back reversals are giving us a wide window of time that could contain more than one significant top or bottom. The broad stock market may be turning down today as all three market indices (DOW, S&P 500, NASDAQ) are encountering resistance lines in their charts. The DOW and S&P 500 could be forming "double-tops" near (but below) their recent mid-July all-time highs while the NASDAQ may be rolling over a good distance below its July all-time high. "Double-tops" are bearish formations, but we don't really have a bearish divergence signal until one or two (but not all three) index/indices makes a new all-time high or highs without the other/others. That could happen if the DOW and/or S&P 500 push higher into our next reversal zone.
We have been anticipating the top to a long-term 4-year cycle in equities by the end of this month. While that is still possible, the strong rally of these three indices from their recent Aug. 5 lows as well as several other technical signals are forcing us to consider an alternative scenario. If the 4-year cycle is in play, we still expect that top very soon followed by a 16% - 26% fall into the end of this year. But for reasons too complicated for discussion here, we may be dealing with a 6-year cycle instead of a 4-year one. If that is the case, this market would be much more bullish and could rally well above those July all-time highs (41,376 in the DOW, 5,670 in the S&P 500, and 18,671 in the NASDAQ) into the first half of next year.
I entered a short position in the DOW on Aug. 8 (around 39,500) expecting a bearish turning down of this market by the end of the month. That position is now about 2% - 3% in the red. If the market is turning down now, or even if the DOW and/or S&P 500 top out by next week and turn south, we should recover at least some of this loss, and possibly be back on track for significant profit if the 4-year cycle is playing out. For this bearish scenario to be valid, several support areas in the DOW need be broken:
1) The "gap-up" space between 40,000 and 40,300 needs to be closed. In other words, the DOW first needs to move down to 40,000 or below soon.
2) The 15-day and 45-day moving averages are now rising and converging just below 40,000, so this is now a strong line of support. The DOW needs to break below this level to be bearish.
3) There is another strong line of support just above the start of the current medium-term cycle around 39,000. If a 4-year cycle is indeed playing out, the DOW should break well below there soon and be on its way to a 16% - 26% correction.
OK, that's a LOT of support to break through to confirm the end of a 4-year cycle and our bearish strategy. It could happen, but I am going to play it safe here and probably look to cover my short DOW position if this index pauses near any of these support lines (i.e. 40,300, 40,000 and 39,000). If the market continues to rally, I will also unload my short position if ALL THREE indices make new all-time highs. (As I mentioned above, the DOW and S&P 500 are very close to their all-time highs and could edge higher and break those highs tomorrow or next week; but without the NASDAQ, this would give us a strong bearish divergence signal inside a strong reversal zone - increasing the chances of a downturn.)
For today I am still holding my short position in the DOW (broad stock market).
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