IMPORTANT COMMENT ON BROAD STOCK MARKET (LONGER-TERM)
and
BROAD STOCK MARKET TRADE ALERT (4:00 pm EDST)
There is currently enormous ambiguity in the short-term analysis of the broad stock market which could give equal merit to the idea of a bullish rally or, alternatively, a bearish fall soon. All three market indices (DOW, S&P 500, NASDAQ) have all made new weekly highs this week, which is bullish, but the DOW is still below its June 11 high of 25,403 while the other two indices have already exceeded their highs from June. Thus a bearish divergence signal is in place (until the DOW exceeds 25,403). (UPDATE - the DOW has just broken through 25,403 - see third paragraph below). We also note that the NASDAQ is now making new all-time highs while the DOW and S&P 500 are still below their all-time highs from late January (26,617 in the DOW and 2,873 in the S&P 500). This is an even stronger bearish divergence signal for this market. But another bullish factor would be the very strong possibility that all three indices started new medium term cycles on June 28. The early part of any cycle is usually strongly bullish.
OK, the short-term technical picture in equities is mixed and confusing now. But what about the longer-term picture?
Thankfully, that is simpler and clearer. We are approaching the end of a long-term (approximately 4 year) cycle in the broad stock market that is due to peak by October this year. This cycle may have already peaked in the DOW and S&P 500 in January, but that can't be confirmed yet as these two indices could still make new all-time highs by October. Once this 4 year cycle high is in, the broad stock market will likely take a very serious correction into 2019 - 2020. This is the reason I have been so keen on short selling this market at potential tops. Any significant top from now through the end of this year could potentially be the final top to this 4 year cycle. Any strong rally into one of our reversal zones over the next several months should be viewed as a potential opportunity to short this market. The month of August may be a little challenging as it has two reversal zones (July 27- Aug. 6 and Aug. 20-28). When two reversal zones are close, the reversal point could come between both, or there could be multiple reversals in the time period encompassing both zones. What this means is that we need to watch for a significant top throughout the entire month of August, and we need to be careful with our trading as there could be a lot of volatility during this time period.
Now back to our short-term picture. As I write this paragraph (around 3:30 pm EDST), the DOW is having a late day surge and is breaking and closing above its June high of 25,403. This means we should cover (unload) our short positions in the broad stock market as bullish forces seem to be overriding bearish factors. It is too late to pull out today so I am going to place an order to unload my short position at tomorrow's market open. If the market doesn't gap up, we may even get a better price then. We are taking a loss of about 1.5% here (which is not too bad and is more than compensated for by our recent profits in crude oil).
Of course, there is a possibility we are getting "whipsawed" out of our short position as we are entering a reversal zone on Friday and could soon see a top followed by a significant correction. But if bullish factors prevail, that top could come late in the reversal (through Aug. 6) and this market may even bypass this first reversal zone to make a significant top anytime in August (see discussion above). The DOW breaking its June high and negating a bearish divergence signal today is a reasonable stop loss parameter and is worth executing now, especially as it entails a minimum loss on our trade. If a rally continues into August, we will be looking to short this market again as the 4 year cycle top is due anytime now.
and
BROAD STOCK MARKET TRADE ALERT (4:00 pm EDST)
There is currently enormous ambiguity in the short-term analysis of the broad stock market which could give equal merit to the idea of a bullish rally or, alternatively, a bearish fall soon. All three market indices (DOW, S&P 500, NASDAQ) have all made new weekly highs this week, which is bullish, but the DOW is still below its June 11 high of 25,403 while the other two indices have already exceeded their highs from June. Thus a bearish divergence signal is in place (until the DOW exceeds 25,403). (UPDATE - the DOW has just broken through 25,403 - see third paragraph below). We also note that the NASDAQ is now making new all-time highs while the DOW and S&P 500 are still below their all-time highs from late January (26,617 in the DOW and 2,873 in the S&P 500). This is an even stronger bearish divergence signal for this market. But another bullish factor would be the very strong possibility that all three indices started new medium term cycles on June 28. The early part of any cycle is usually strongly bullish.
OK, the short-term technical picture in equities is mixed and confusing now. But what about the longer-term picture?
Thankfully, that is simpler and clearer. We are approaching the end of a long-term (approximately 4 year) cycle in the broad stock market that is due to peak by October this year. This cycle may have already peaked in the DOW and S&P 500 in January, but that can't be confirmed yet as these two indices could still make new all-time highs by October. Once this 4 year cycle high is in, the broad stock market will likely take a very serious correction into 2019 - 2020. This is the reason I have been so keen on short selling this market at potential tops. Any significant top from now through the end of this year could potentially be the final top to this 4 year cycle. Any strong rally into one of our reversal zones over the next several months should be viewed as a potential opportunity to short this market. The month of August may be a little challenging as it has two reversal zones (July 27- Aug. 6 and Aug. 20-28). When two reversal zones are close, the reversal point could come between both, or there could be multiple reversals in the time period encompassing both zones. What this means is that we need to watch for a significant top throughout the entire month of August, and we need to be careful with our trading as there could be a lot of volatility during this time period.
Now back to our short-term picture. As I write this paragraph (around 3:30 pm EDST), the DOW is having a late day surge and is breaking and closing above its June high of 25,403. This means we should cover (unload) our short positions in the broad stock market as bullish forces seem to be overriding bearish factors. It is too late to pull out today so I am going to place an order to unload my short position at tomorrow's market open. If the market doesn't gap up, we may even get a better price then. We are taking a loss of about 1.5% here (which is not too bad and is more than compensated for by our recent profits in crude oil).
Of course, there is a possibility we are getting "whipsawed" out of our short position as we are entering a reversal zone on Friday and could soon see a top followed by a significant correction. But if bullish factors prevail, that top could come late in the reversal (through Aug. 6) and this market may even bypass this first reversal zone to make a significant top anytime in August (see discussion above). The DOW breaking its June high and negating a bearish divergence signal today is a reasonable stop loss parameter and is worth executing now, especially as it entails a minimum loss on our trade. If a rally continues into August, we will be looking to short this market again as the 4 year cycle top is due anytime now.
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