A quick mid week update.
Stock markets have pushed higher and are in rally mode again. The Nasdaq is testing its first upside target at 3730 already. If it can push through convincingly, then the recent correction will be over. That would mean the correction has been very shallow and would suggest much higher stock prices ahead.
The situation is more clear in this chart (click for larger image):
The Nasdaq has been contained in an arc formation since April and is now bumping into the ceiling. If it breaks out to the upside then a buying panic may follow. I still expect a pullback in the next week or two, but you never know. My Earl2 indicator (orange line) is turning up already, lending credibility to this most bullish scenario. I would look for Nasdaq 4000 before year end if that scenario unfolds.
Impossible you might think. But let’s not forget that there is a reason why the centrals banks are not resorting to quantitative easing (QE) whenever there is an economic crisis.
The problem with QE and artificially low interest rates is that long term bonds are rendered completely unattractive by it, leaving investors with few good choices other than stocks. So, the risk is a sudden stampede into stocks, which would have the same devastating effects as it had in the 1920s.
We are not there yet, but the danger is present.
Stay tuned,
Danny
LunaticTrader 