Short-Term Trend Is Down

The short-term trend is down. It is about six weeks old, and that is plenty of time to wash out the sellers and set up for another trend higher.

Although there are plenty of short-term oversold conditions, the market is not showing signs that it is ready to rally.  So far, 2019 has given new life to the sell in May strategy.

The bullish-percents continue to confirm the downtrend.

It is interesting to note that despite all the selling, the bullish-percents indicate that about half of all stocks still have positive chart patterns.I'm not sure how to interpret that.

According to Mike Burk (see link below), the NYSE experienced two Hindenburg Omen's this week. In my opinion, these are important events when they occur in clusters. If we get a couple more next week then I will get more defensive.

More from Mike's column: "[Breadth] confirmations of the [stock] index highs 3 weeks ago imply higher prices ahead.If deterioration of the breadth indicators along with lagging secondaries (small caps) continues, we will have a good setup for a cycle top when the blue-chip indices hit their likely new highs."

The ultra-sensitive package index is holding up fairly well. This index was an early bearish indication last fall when the market fell apart, so a bit of strength here is welcome.

The March lows look like the line in the sand.

The Longer-Term Outlook

This is a scary chart. Looking at this, I find it difficult to be bullish.

Widening the same chart to over a decade makes it look a lot less scary.These stocks were ahead of themselves.

I'd say the chart above helps more with the medium-term trend which we already know is peaking, and the chart below pertains to the long-term outlook which is still trending higher although there is plenty of risk that the long-term trend is forming a huge top.

The ECRI Index has been weak recently, but not enough to send up flares. At the zero-level, I think we can expect a muddling economy with a choppy stock market.

Should we buy the dips? I'd say cautiously yes for short-term gain if the ECRI holds near this level, but I'm a strong seller if the ECRI starts to point decisively lower.

What is Dow Theory telling us? I think the Dow Indexes gave us a long-term sell signal in December-2018, and that the signal is still in effect.

The Transports are under the 80-week average with the 40-week about to cross under. Not good. The Industrials are hanging in there, though.

The 3M/10Y yield curve is negative again. This market timing indicator has been mentioned so much and so often this year that I am reluctant to show it here. But, it is definitely another indication that risks are high for stock prices. A market topping process takes months, and this is one of the signals that the process has started.

Bottom Line

I think the weight of the evidence is that the general market is in a multi-year topping process. But I am open to other opinions and possibilities based on what we see in these charts. For now, I am a seller, and I will gradually reduce the percentage of stocks in my accounts.
 

SOXL went from leader to laggard in one week. Wow.

Outlook Summary

The long-term outlook is cautious as of May-18.

The medium-term trend is down as of May-7. 
The short-term trend is down as of Apr-17.
The medium-term trend for bond prices is up as of Nov-16 (prices higher yields lower).  

Investing Themes:

Technology, Dividend-Payers, Treasuries

Strategy During a Bull Market:

• Buy large-cap stocks and ETFs at the lows of the medium or short-term market trends.
• Buy small-cap growth stocks on breaks to new highs in the early stages of market trends.
• Reduce buying when the market trend is at the top of the range.
• Take partial profits when the market uptrend starts to struggle at the highs.
• The cardinal rule is never invest based on personal politics. The stock market can do well regardless of which political party is in control.