BROAD STOCK MARKET TRADE ALERT (11:15 pm EDT)
On Monday the DOW broke below its 17,465 low from July 7 which opens up the possibility of a much deeper correction over the next several weeks (and possibly months). A strong bearish momentum signal also appeared in yesterday's DOW chart making this index now 100% bearish. Despite this bearish possibility, the DOW recovered strongly today and closed at 17,603 - far above that 17,465 low. We have been expecting a bottom and reversal in this week's strong reversal zone, and yesterday's low could have been it. The fact that the DOW made a new monthly low while the S&P 500 did not also creates a strong intermarket bullish divergence signal and supports the idea that yesterday's low starts a new medium-term DOW cycle which would be at least initially bullish. Directional momentum in both the S&P 500 and NASDAQ remain nearly 100% bullish which further supports the bullish case. I am favoring the bullish view at the moment, but we need to keep in mind the bearish possibility (i.e. the markets resuming their plunge to significantly lower levels). Reaction to tomorrow's Fed statement could be the determining factor that kicks the market either up or down from here.
The Federal Reserve will conclude its two day meeting tomorrow with a statement release at 2:00 in the afternoon. It seems there will be no press conference following the meeting. Recent economic data has been poor, and many analysts that were expecting the first interest rate hike in September are now speculating that the Fed may delay that hike into November or even December. If the Fed's statement suggests this (or is dovish in any way), stocks could continue their enthusiastic rally, but a more hawkish tone in the Fed's rhetoric might kick the markets back down. A good way to play this is to go long at the opening of Wednesday's market before the Fed statement is released. If the DOW rallies and closes the week in the upper third of this week's range, we will stay long. If markets start to fall and the DOW closes below yesterday's low (17,399) with the S&P 500 also making a new monthly low, we will bail out. The DOW is currently about 1% above that 17,399 low, so should the markets turn south, our loss from a long position would be minimal. Entering a long position in the broad stock market now.
I want to emphasize here that this bullish view of the broad stock market is short-term and that my longer term and even medium-term view of equity markets is bearish. If we do get a rally now, I expect it to be short-term and followed by a significant correction of 10 -15 % or more. If you are a long-term investor or a very conservative, infrequent trader, it is my opinion that you should be out of the broad stock market for at least the next twelve months as this market is very volatile and vulnerable to severe corrections for the rest of the year and well into 2016.
On Monday the DOW broke below its 17,465 low from July 7 which opens up the possibility of a much deeper correction over the next several weeks (and possibly months). A strong bearish momentum signal also appeared in yesterday's DOW chart making this index now 100% bearish. Despite this bearish possibility, the DOW recovered strongly today and closed at 17,603 - far above that 17,465 low. We have been expecting a bottom and reversal in this week's strong reversal zone, and yesterday's low could have been it. The fact that the DOW made a new monthly low while the S&P 500 did not also creates a strong intermarket bullish divergence signal and supports the idea that yesterday's low starts a new medium-term DOW cycle which would be at least initially bullish. Directional momentum in both the S&P 500 and NASDAQ remain nearly 100% bullish which further supports the bullish case. I am favoring the bullish view at the moment, but we need to keep in mind the bearish possibility (i.e. the markets resuming their plunge to significantly lower levels). Reaction to tomorrow's Fed statement could be the determining factor that kicks the market either up or down from here.
The Federal Reserve will conclude its two day meeting tomorrow with a statement release at 2:00 in the afternoon. It seems there will be no press conference following the meeting. Recent economic data has been poor, and many analysts that were expecting the first interest rate hike in September are now speculating that the Fed may delay that hike into November or even December. If the Fed's statement suggests this (or is dovish in any way), stocks could continue their enthusiastic rally, but a more hawkish tone in the Fed's rhetoric might kick the markets back down. A good way to play this is to go long at the opening of Wednesday's market before the Fed statement is released. If the DOW rallies and closes the week in the upper third of this week's range, we will stay long. If markets start to fall and the DOW closes below yesterday's low (17,399) with the S&P 500 also making a new monthly low, we will bail out. The DOW is currently about 1% above that 17,399 low, so should the markets turn south, our loss from a long position would be minimal. Entering a long position in the broad stock market now.
I want to emphasize here that this bullish view of the broad stock market is short-term and that my longer term and even medium-term view of equity markets is bearish. If we do get a rally now, I expect it to be short-term and followed by a significant correction of 10 -15 % or more. If you are a long-term investor or a very conservative, infrequent trader, it is my opinion that you should be out of the broad stock market for at least the next twelve months as this market is very volatile and vulnerable to severe corrections for the rest of the year and well into 2016.
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