While I indicated that the bull market is still in place, I had expected a little more pressure on the market. We may see some profit taking after today’s big rally. I believe that today’s action confirms that we were just seeing a correction, a scary one at that! The NASDAQ, which I indicated would lead the rally back, did just that today. The NASDAQ has recovered all of its losses of the most recent decline, basically back to where it was before the October 10th correction started. However, remember that the NASDAQ had started its decline earlier than the other indexes.
There are two areas of recovery, the NASDAQ has reached one and my guess is that we will try to reach the second level. Once that is reached, we should see a pause or brief correction, then a run to new highs into the end of the year.
The weakness in the Dow Jones and S & P 500 didn’t materialize until the 10th of October. These indexes had not seen the weakness that the NASDAQ showed prior to October 10th. So, as the NASDAQ moves to level 2 the other indexes should just move up to Level 1. A little confusing, but the end result is that we should see the losses eliminated over time.
Once all of the indexes get back in sync, we should see another correction. This one should be less severe and should set the stage for the Holiday rally that we have all become accustomed to. This rally should take all of the indexes to new highs by the end of the year, setting the stage for a bubble top in 2019.
In the back of my mind, I’m thinking about the election. A strong showing by the Democrats could set the stage for the next correction that I mentioned. If the Democrats take both houses, that could change my outlook. If they win just one, then I don’t see any substantial change in my thoughts. The debt created by Trump’s tax cuts and military spending will come back to bite us! The question is when. You don’t cut taxes in a strong economy, that leaves us with no tools when the economy weakens.