In last Tuesday's blog I wrote about the broad stock market:
"All three indices started new medium-term cycles on Aug. 5 and are only 4 weeks old. They are young and bullish. Nevertheless, they are now in a time frame for their first significant sub-cycle correction. The depth of this correction will determine whether or not their trend stays bullish. We'll have to wait and see. If the NASDAQ finds support this week (i.e. inside our reversal zone) around 17,000 and the DOW and S&P 500 find support at or below their 15-day and 45-day moving averages, that could be a springboard for another rally."
Well, on Friday the NASDAQ broke and closed below 17,000. the DOW found support between its 15-day and 45-day moving averages, and the S&P 500 found support below its 15-day and 45-day averages around 5,400. All three indices are rallying this week from those lows, but yesterday the DOW plunged below its 45-day moving average before snapping back up above it. This made a new weekly low. The S&P 500 and NASDAQ did a similar dip and bounce, but neither one made a new weekly low. This creates at least a temporary bullish divergence signal (until the S&P 500 and NASDAQ make new lows). Yesterday was also the first day in a new general reversal zone (Sept. 11 - 19), so that low in the DOW could be significant.
It is still not clear if these new medium-term cycles are going to be bullish or bearish. If they are to be bearish, their first significant sub-cycle corrective lows (which could happen anytime now and would be due by the end of the month) would go below the Aug. 5 lows (that would be 38,499 in the DOW, 5,119 in the S&P 500, and 15,713 in the NASDAQ). There are a lot of bearish technical signals right now that support this bearish view, and so I am favoring it at the moment.
Yesterday and today's market behavior, however, was bullish. If these indices can close the week above their 15-day moving averages, we may have to change that bearish view. As I mentioned in previous blogs, it all depends on whether this market is exhibiting a 4-year longer-term cycle or a 6-year longer-term cycle. If the 6-year cycle is operative, we could see new all-time highs into 2025. If a 4-year cycle is unfolding, the current medium-term cycles will turn bearish and make new lows as described above. I am still holding my short position in the DOW (which I entered on Aug. 8 around 39,500). That trade is still a bit in the red, but if this market is bearish, it should soon be headed towards a significant profit. I will cover this short position if the market turns bullish.