It is extremely important at this point of the rally to emphasize the wide spread negative divergences the market is putting forward, both on a daily and weekly basis. It is these divergences along with the current bullish sentiment and the inability of the short term model to get into a buy signal area even as the market moves higher that has made the intermediate term look very weak and negative.
Long term I remain extremely bullish, but intermediate term the equity markets are ripe for a substantial correction. A correction that is substantial enough to put on a defensive stance by hedging our long positions.
Please notice I have placed a sentiment chart showing that the current bullishness is the highest since early 2004, which preceded a sizable correction.
It is also important to note that the forecast model for the market shows a high being put in place on May 8th, which is today and a low not being put into place until August 24th, so keep these dates in mind as we move forward.
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