BROAD STOCK MARKET UPDATE (2:30 pm EST)
Wow! That was fast! Equity markets are breaking records today as the DOW surged over 300 points and smashed through the 21,000 mark to make a record all-time high. Apparently fueled by Trump's first speech to Congress last night which was favorably received by Wall Street investors, the DOW's rally is breaking records as one of the fastest 1000 point gains in the blue-chip index's history (it broke 20,000 for the first time just 5 weeks ago). As I've mentioned in recent blogs, the current rally in equity markets is potentially a "parabolic blow-off", and if it is, it should have a peak followed by a steep and severe correction. Calling the peak of a "blow-off" rally is not easy as it is usually driven by a buying frenzy of "irrationally exuberant" traders, but we can use cycles and timing to pinpoint likely turning points. The current medium-term cycles in the DOW, S&P 500 and NASDAQ are all nearing completion which means they are all due to take a significant correction from their highest points (which are still forming as I write this and can, of course, go higher). This week and early next is also a strong reversal zone which means a significant change in the direction of this market could happen now.
The NASDAQ broke to new highs today which negates the bearish intermarket divergence signal we had earlier in the week. We entered a short position in the broad stock market yesterday, and I suggested a stop loss based on the NASDAQ making new highs so some traders may be stopped out already. Unfortunately, trying to sell short the top of a "blow-off" rally can be like standing in front of a freight train, and it is not for the faint-hearted trader. Nevertheless, "blow-off" tops can end abruptly, and we are still in a strong reversal zone at least through early next week. The problem is that tax season ends in mid-April, and many baby boomers are putting substantial sums into their investment funds and 401Ks this year as they prepare to retire soon. This money influx into retirement funds coupled with Wall Street's enthusiasm for Trump could theoretically push the market's rally past the current reversal zone and into the next one which is in early April. This would distort the market's normal cycle, but that is possible considering the unusually bullish market forces manifesting now. Because today's strong equity surge was likely triggered by Trump's speech, I am going to hold my short position for now as we could see prices back down a bit tomorrow. Those who are already stopped out may have another opportunity to sell short next week if we get another case of bearish intermarket divergence. Holding my short position in the broad stock market for now.
Wow! That was fast! Equity markets are breaking records today as the DOW surged over 300 points and smashed through the 21,000 mark to make a record all-time high. Apparently fueled by Trump's first speech to Congress last night which was favorably received by Wall Street investors, the DOW's rally is breaking records as one of the fastest 1000 point gains in the blue-chip index's history (it broke 20,000 for the first time just 5 weeks ago). As I've mentioned in recent blogs, the current rally in equity markets is potentially a "parabolic blow-off", and if it is, it should have a peak followed by a steep and severe correction. Calling the peak of a "blow-off" rally is not easy as it is usually driven by a buying frenzy of "irrationally exuberant" traders, but we can use cycles and timing to pinpoint likely turning points. The current medium-term cycles in the DOW, S&P 500 and NASDAQ are all nearing completion which means they are all due to take a significant correction from their highest points (which are still forming as I write this and can, of course, go higher). This week and early next is also a strong reversal zone which means a significant change in the direction of this market could happen now.
The NASDAQ broke to new highs today which negates the bearish intermarket divergence signal we had earlier in the week. We entered a short position in the broad stock market yesterday, and I suggested a stop loss based on the NASDAQ making new highs so some traders may be stopped out already. Unfortunately, trying to sell short the top of a "blow-off" rally can be like standing in front of a freight train, and it is not for the faint-hearted trader. Nevertheless, "blow-off" tops can end abruptly, and we are still in a strong reversal zone at least through early next week. The problem is that tax season ends in mid-April, and many baby boomers are putting substantial sums into their investment funds and 401Ks this year as they prepare to retire soon. This money influx into retirement funds coupled with Wall Street's enthusiasm for Trump could theoretically push the market's rally past the current reversal zone and into the next one which is in early April. This would distort the market's normal cycle, but that is possible considering the unusually bullish market forces manifesting now. Because today's strong equity surge was likely triggered by Trump's speech, I am going to hold my short position for now as we could see prices back down a bit tomorrow. Those who are already stopped out may have another opportunity to sell short next week if we get another case of bearish intermarket divergence. Holding my short position in the broad stock market for now.
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