*** IMPORTANT UPDATE ON THE BROAD STOCK MARKET ***
We may be approaching a major turning point in the broad stock market, which could send equities to new highs over the next few months or, alternatively, reverse the current bullish trend and send the markets into a significant sell-off. Let's analyze this situation a bit to gain a better understanding of it.
In my last blog (Oct. 29), I suggested that the broad stock market indices (DOW, S&P 500, NASDAQ) could be topping out and ready to roll over for a significant correction. This was because we were in a reversal zone, and it was late into the medium-term cycles of all three indices. The S&P 500 and NASDAQ did indeed turn down after Oct. 29 and are now taking their 2-5 week corrections to their final medium-term cycle bottoms. The DOW, however, pushed higher and made a new all-time high on Nov. 11 before falling steeply. This divergence between the DOW and the other two indices was a strong bearish signal.
While the S&P 500 and NASDAQ have been falling for a little over two weeks, the DOW's correction has only been 4 days. This suggests the correction in all three indices could continue for at least another week or two. Our concern is with how far down they will go. If they break below the start of their medium-term cycles, the trend (now still bullish) would turn bearish, possibly VERY bearish, as we are near the end of several longer-term cycles. The DOW's medium-term cycle probably began at 44,948, but there's a chance it started as low as 43,340, so we should watch those two levels. The S&P 500 started its medium-term cycle at either 6,343 or 6,212. The bullish alternative would see these indices hold above those starting points and then rally to new highs into the new year.
So which way will it go? Well, I was favoring the bullish view; however, many reputable market analysts have recently been warning about the tech sector - specifically AI stocks - which are severely overbought and may be ready to take a steep correction (keep an eye on NVIDIA this week). A sudden sell-off in AI stocks could potentially trigger a larger stock market plunge (which could come at any time now, as several longer-term cycles are due to bottom soon). This has dampened my enthusiasm for buying at the final bottom of the current medium-term cycles. We may still do that if those lows mentioned above are not breached, but we have to be on guard for any sudden downturns that would turn this market bearish (especially in the AI sector - now a major percentage of the broad stock market).
I'm staying on the sidelines of the broad stock market for now.
We may be approaching a major turning point in the broad stock market, which could send equities to new highs over the next few months or, alternatively, reverse the current bullish trend and send the markets into a significant sell-off. Let's analyze this situation a bit to gain a better understanding of it.
In my last blog (Oct. 29), I suggested that the broad stock market indices (DOW, S&P 500, NASDAQ) could be topping out and ready to roll over for a significant correction. This was because we were in a reversal zone, and it was late into the medium-term cycles of all three indices. The S&P 500 and NASDAQ did indeed turn down after Oct. 29 and are now taking their 2-5 week corrections to their final medium-term cycle bottoms. The DOW, however, pushed higher and made a new all-time high on Nov. 11 before falling steeply. This divergence between the DOW and the other two indices was a strong bearish signal.
While the S&P 500 and NASDAQ have been falling for a little over two weeks, the DOW's correction has only been 4 days. This suggests the correction in all three indices could continue for at least another week or two. Our concern is with how far down they will go. If they break below the start of their medium-term cycles, the trend (now still bullish) would turn bearish, possibly VERY bearish, as we are near the end of several longer-term cycles. The DOW's medium-term cycle probably began at 44,948, but there's a chance it started as low as 43,340, so we should watch those two levels. The S&P 500 started its medium-term cycle at either 6,343 or 6,212. The bullish alternative would see these indices hold above those starting points and then rally to new highs into the new year.
So which way will it go? Well, I was favoring the bullish view; however, many reputable market analysts have recently been warning about the tech sector - specifically AI stocks - which are severely overbought and may be ready to take a steep correction (keep an eye on NVIDIA this week). A sudden sell-off in AI stocks could potentially trigger a larger stock market plunge (which could come at any time now, as several longer-term cycles are due to bottom soon). This has dampened my enthusiasm for buying at the final bottom of the current medium-term cycles. We may still do that if those lows mentioned above are not breached, but we have to be on guard for any sudden downturns that would turn this market bearish (especially in the AI sector - now a major percentage of the broad stock market).
I'm staying on the sidelines of the broad stock market for now.
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