In Monday's blog I wrote:
"This is the last week of a major reversal period for equities. We are watching for signs of a final medium-term cycle bottom which is now due in all three major market indices (DOW, S&P 500, and NASDAQ). That bottom could end up below the March 27 lows of these indices, but if only one or two of these indices (but not all three) break(s) below the March 27 low(s) then we would have an intermarket bullish divergence signal in this reversal zone which could be a good spot to take profits in our short position and maybe even go long. We will watch for that set-up this week."
Today the DOW fell and closed below its low from March 27 while the S&P 500 and NASDAQ remained above their March 27 lows. We are thus getting our intermarket bullish divergence signal, and we are near the end of the current reversal zone for equities (this Friday). We could see the final bottom in the broad stock market's current medium-term cycle over the next two days and the start of a new one with a new, bullish rally in all three indices. For this reason I am now going to cover my short position in the broad stock market. We entered this position back on February 28 and have a small profit in the DOW and S&P 500. Those trading the NASDAQ are just about breaking even. This has been a disappointing trade as we had expected these markets to fall further (they usually fall more steeply to their cycle bottoms) so it seems like "Trumphoria" and pre-tax-day contributions to baby boomer retirement plans may have buoyed the markets and averted a deeper correction. I am setting up this trade tonight for tomorrow's market open. The DOW may reverse back up from here or may fall lower over the next two days, but since we are at the end of the reversal zone, a cycle bottom should be imminent. I may consider entering a long position in the broad stock market tomorrow or Friday. Stay tuned. Unloading (covering) my short position in the broad stock market at Thursday's market open.