BROAD STOCK MARKET UPDATE (11:00 pm EST)
As I mentioned yesterday, it looks like the DOW and S&P 500 started new medium-term cycles on Oct. 30 (the DOW at 26,143 and the S&P 500 at 3,234). It is very early in these cycles, and most cycles are bullish in their early stage. Both indices are demonstrating this as they have rallied steeply from their respective lows to make new all-time highs already. BUT - yes, there is often a "but" to temper our enthusiasm in any one direction - we are now inside a strong reversal zone (Nov. 5 - 19) that could have "pivot points" around Nov. 9 and/or Nov. 16. That means that despite this market's bullish momentum, we should be watching for a top and some sort of correction (and maybe even a subsequent bottom and reversal back up) around either one (or both) of these "pivot' dates. We are already seeing a sharp dip from Monday's (Nov. 9) all-time highs, and we will now watch to see if this follows through to a deeper correction.
Because both the DOW and S&P 500 have made new all-time highs so quickly, it is likely that the trend of these cycles will be bullish, and they will make newer highs soon. In that scenario, we would want to buy any modest dips now. If the DOW can get down to the 27,650 area and the S&P 500 to the 3,375 area and stabilize, we may consider going long. But if this market wants to push higher this week or even into next week (esp. Monday - Nov. 16), we may have to wait a bit longer for a corrective low to buy.
The NASDAQ 100 (E -Mini, Dec. contract chart) is also a young medium-term cycle that started with a low of 10,656 on Sept. 21. This index took its first significant sub-cycle corrective dip on Nov. 2. It bounced back up from there, but it could now take another significant and steep correction from a high in our new reversal zone. It's possible that high already happened on Monday. If it can drop down to the 11,450 level, we may consider buying; however, as with the DOW and S&P 500, if this market rallies some more, we may see Monday's high exceeded this week or next before a subsequent correction unfolds. If the NASDAQ 100 makes a new all-time high (it did NOT do that on Monday as the other two indices did), it would be an even more bullish sign and a signal to wait for a significant corrective dip to buy. For now, we will remain on the sidelines of the broad stock market.
Although equity markets are looking bullish here, we shouldn't forget that we are still anticipating a VERY significant correction in the broad stock market (maybe 30-50% or even more) that will likely commence from the final tops in these new medium-term cycles that have just started in all three indices (DOW, S&P 500, NASDAQ). This market is very overbought (a bubble looking for a pin) right now, and any dramatic political or geopolitical event could theoretically trigger this big sell-off. Nevertheless, we COULD see a significant rally (even a strong "blow-off" rally) before such a large sell-off. This is why we are considering long positions on current corrective dips. I don't think the big sell-off is here yet, but the NASDAQ will have to make a new all-time high fairly soon for us to discount that possibility. The final outcome of our very heated presidential election could be a significant factor in determining whether we have a "blow-off" or "sell-off" (or both). We are truly living in volatile political, social, and financial times.
As I mentioned yesterday, it looks like the DOW and S&P 500 started new medium-term cycles on Oct. 30 (the DOW at 26,143 and the S&P 500 at 3,234). It is very early in these cycles, and most cycles are bullish in their early stage. Both indices are demonstrating this as they have rallied steeply from their respective lows to make new all-time highs already. BUT - yes, there is often a "but" to temper our enthusiasm in any one direction - we are now inside a strong reversal zone (Nov. 5 - 19) that could have "pivot points" around Nov. 9 and/or Nov. 16. That means that despite this market's bullish momentum, we should be watching for a top and some sort of correction (and maybe even a subsequent bottom and reversal back up) around either one (or both) of these "pivot' dates. We are already seeing a sharp dip from Monday's (Nov. 9) all-time highs, and we will now watch to see if this follows through to a deeper correction.
Because both the DOW and S&P 500 have made new all-time highs so quickly, it is likely that the trend of these cycles will be bullish, and they will make newer highs soon. In that scenario, we would want to buy any modest dips now. If the DOW can get down to the 27,650 area and the S&P 500 to the 3,375 area and stabilize, we may consider going long. But if this market wants to push higher this week or even into next week (esp. Monday - Nov. 16), we may have to wait a bit longer for a corrective low to buy.
The NASDAQ 100 (E -Mini, Dec. contract chart) is also a young medium-term cycle that started with a low of 10,656 on Sept. 21. This index took its first significant sub-cycle corrective dip on Nov. 2. It bounced back up from there, but it could now take another significant and steep correction from a high in our new reversal zone. It's possible that high already happened on Monday. If it can drop down to the 11,450 level, we may consider buying; however, as with the DOW and S&P 500, if this market rallies some more, we may see Monday's high exceeded this week or next before a subsequent correction unfolds. If the NASDAQ 100 makes a new all-time high (it did NOT do that on Monday as the other two indices did), it would be an even more bullish sign and a signal to wait for a significant corrective dip to buy. For now, we will remain on the sidelines of the broad stock market.
Although equity markets are looking bullish here, we shouldn't forget that we are still anticipating a VERY significant correction in the broad stock market (maybe 30-50% or even more) that will likely commence from the final tops in these new medium-term cycles that have just started in all three indices (DOW, S&P 500, NASDAQ). This market is very overbought (a bubble looking for a pin) right now, and any dramatic political or geopolitical event could theoretically trigger this big sell-off. Nevertheless, we COULD see a significant rally (even a strong "blow-off" rally) before such a large sell-off. This is why we are considering long positions on current corrective dips. I don't think the big sell-off is here yet, but the NASDAQ will have to make a new all-time high fairly soon for us to discount that possibility. The final outcome of our very heated presidential election could be a significant factor in determining whether we have a "blow-off" or "sell-off" (or both). We are truly living in volatile political, social, and financial times.
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