UPDATE ON THE BROAD STOCK MARKET (3:00 pm EDST)
Today we enter our new reversal zone for most markets (Oct. 29 - Nov. 8). It is early in the reversal but we are already seeing intermarket bearish divergence. Yesterday and today the S&P 500 broke above its all-time high of 3,028 while the DOW and NASDAQ remained below their all-time highs (although the NASDAQ 100 INDEX December contract chart has broken its all-time high). I am going to hold off selling short, however, because it is very early in the reversal period, and next week we have another FOMC meeting where the Fed will decide on whether or not they will put in place a third interest rate cut (following the cuts from their last two monthly meetings). There is a strong feeling among investors and analysts that there will be three cuts in a row. Nevertheless, over the last few years there has been divisiveness among Fed officials over rate cutting so it is possible the Fed will refrain from cutting this time. The anticipation of another cut could drive the markets higher into next week, but if the Fed disappoints, it could set the stage for a sell-off in the market. Even if the Fed delivers another cut, we could see a "buy the rumor, sell the news" effect with some sort of sell-off after the announcement. Let's stay on the sidelines for now and see if equities can push higher into next week for a short-selling opportunity. If the market does fall now, we could also see a buy spot next week and a possible bounce up from a sub-cycle low fueled by a Fed rate cut.
Today we enter our new reversal zone for most markets (Oct. 29 - Nov. 8). It is early in the reversal but we are already seeing intermarket bearish divergence. Yesterday and today the S&P 500 broke above its all-time high of 3,028 while the DOW and NASDAQ remained below their all-time highs (although the NASDAQ 100 INDEX December contract chart has broken its all-time high). I am going to hold off selling short, however, because it is very early in the reversal period, and next week we have another FOMC meeting where the Fed will decide on whether or not they will put in place a third interest rate cut (following the cuts from their last two monthly meetings). There is a strong feeling among investors and analysts that there will be three cuts in a row. Nevertheless, over the last few years there has been divisiveness among Fed officials over rate cutting so it is possible the Fed will refrain from cutting this time. The anticipation of another cut could drive the markets higher into next week, but if the Fed disappoints, it could set the stage for a sell-off in the market. Even if the Fed delivers another cut, we could see a "buy the rumor, sell the news" effect with some sort of sell-off after the announcement. Let's stay on the sidelines for now and see if equities can push higher into next week for a short-selling opportunity. If the market does fall now, we could also see a buy spot next week and a possible bounce up from a sub-cycle low fueled by a Fed rate cut.
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