Some dovish rhetoric from Fed Chairman Jerome Powell earlier this week seems to have pushed equity markets up over the last few days in spite of COVID-19 fears. The NASDAQ rallied energetically today and came very close to it's high from last week near the end of the day, but it then fell just short of that mark by the closing bell. The DOW and S&P 500 also did not make new weekly highs, but unlike the NASDAQ, they are both still well below their early June highs as well as their February all-time highs (the NASDAQ has already exceeded its June high and Feb. all-time high). We thus still have a strong case of BEARISH divergence in equities.
Even if the NASDAQ makes a new high tomorrow or Friday, the DOW and S&P 500 are still facing resistance at their "gap down" areas (that would be 26,294 - 26,938 in the DOW and 3,123 - 3,181 in the S&P 500) even before they approach their June and February highs. In other words, it will take a lot to negate this bearish divergence signal, and this market is still ripe for topping out this week, turning down and taking a significant correction. If that happens, we will be on track for a final medium-term cycle low to buy around mid-July as I discussed in my previous blog. This seems to be the most likely scenario at the moment as long as 1) the DOW and S&P 500 don't close their "gaps" and 2) both these indices stay below their June highs and especially below their Feb. all-time highs.
We are still on the sidelines of the broad stock market and waiting to buy a corrective cycle low.