The broad stock market is down again today, but not by much, and the DOW is still far away from our ideal corrective low now near 26,300. Equity markets seem indecisive at the moment as they wait for comments from Fed Chairman Jerome Powell who is expected to address the U.S. Congress on Wednesday and Thursday. Wall Street had been expecting a rate cut in July, but the recent better than expected jobs report has many analysts worried that Mr. Powell will delay (or even eliminate) a cut. Any hawkish comment by Powell could push equity markets down.
Tomorrow (Wednesday) is the first day of a new reversal zone for equities (and other markets) (July 10-17). If Mr. Powell suggests a delayed rate cut, or worse, an indefinite cancellation of rate cuts then this market could indeed sell off sharply and approach our target correction near 26,300 in the DOW. On the other hand, any confirmation of an imminent rate cut could trigger a sharp rally. In that case, we need to watch for bearish divergence (one or two, but not all three of the major indices -DOW, S&P 500, NASDAQ- make a new high) this week or next which could signal a top in this reversal zone. We don't want to see all three make new highs, and we don't want to see the DOW above 27,200 or the S&P 500 above 3,100. Let's hold our short positions for now and see what Mr. Powell has to say over the next two days.
.