The Dow Jones Industrial Average has risen from 8850 to almost 9400 since our July 20th update.
At this time, we still think the market is close to making a short-term top (meaning a stock market correction could come at any time).
The stock market correction could take one of two forms: 1) The correction could be a more sideways movement within a small trading range; or 2) The correction could be a 5% or more drop in the Dow Jones Industrial Average or a drop in the S & P 500 to around 950.
If we experience this 5% decline, it could be the result of several factors.
On each new closing Dow industrial average high, we have seen the following:
- Momentum is declining. Fewer stocks are advancing with each new stock market rally high.
- The number of stocks making new 12-month highs is declining with each new stock market rally high.
- The number of bullish versus bearish professionals is at an extreme–many more are bullish. The market usually moves in the opposite direction when such extremes in sentiment are reached.
These are just a few of the technical indicators that suggest a stock market correction is overdo.
After the correction is complete–probably in September–the Dow Jones should approach 10,000.
Lesson: Despite bad economic news, the Dow Jones has continued its 2500 point rally since March. Continue to look for higher stock prices over the next several months.
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