Short-Term Uptrend For SPX

Last week I said I didn't know if we were in a new short-term uptrend, but since then the trend has become clearer. Based on the chart below it seems obvious that a short-term uptrend started on February 4th when the SPX popped up above the 20-day average.

There hasn't been a distribution day in this short-term trend that started Feb-04 which is positive for the market. However, even though Friday's session ended on the highs it also was a low volume day and it seemed as though the market momentum started to stall out a bit starting on Thursday.

This chart shows a slightly elevated level of new 52-week lows which is unusual during an uptrend. This chart makes me think that the recent short-term uptrend might be a last push higher as part of a medium-term topping process.

There were too many new lows on Friday for an uptrend and I started to lighten up on my holdings. After adding to holdings on Monday, I started trimming on Friday and I'm now at about 25% cash. Being in and out of the market so quickly is not really my style so I won't be making a habit of it.

New lows may have perked up this year, but so have new highs. The five-day average net is still clearly bullish.

The bullish percent for the SPX confirms the uptrend, but the bullish percents for the NYSE and NASDAQ do not. This is a short-term negative divergence.

Another negative divergence. Advance/declines aren't confirming.

I've updated the labels to show Feb. 4 as the start of the uptrend, but I am already looking for signs of the next short-term downtrend based on my comments above.

The market has had quite a run since early October. Stepping back and looking at this chart, no one could be surprised to see the market take some time off to catch its breath.

One possibility to consider is that the market has run-up in anticipation of a slow period for stocks during the six months when the Presidential election starts to dominate the news. It could be an excellent year for the sell-in-May market timing strategy.

I believe that the SPX 3200-level will be retested.

This index only knows how to go up. New highs again this week. I will keep my pessimistic nature under control as long as this trend line holds.

It looked like the 50-level for oil would break down this week but it held by the Friday close. A break below 50 for would be a serious blow to the stock market rally.

If the price of oil breaks down then governments from around the world will probably get together to do what is needed to strengthen prices. Still, I tend to think that the price of oil is what has killed many bull markets in the past, so it makes sense to pay attention. Of course, in the past, the problem has been high oil prices, but now I wonder if low prices are just as worrisome.

From a contrarian point-of-view, bullishness is weak which favors higher stock prices medium-term.

Rates have ticked lower this year. Some people think it is a serious warning for stocks, but I honestly don't know because I am one of those people who worry about everything. Similar to the price of oil, I am worried that these rates are so low, but I would also worry if they went higher.

Outlook Summary

Looking for signs of the next short-term downtrend.

• The long-term outlook is positive as of Jan.11 (upgrade from weak-growth Oct. 5).
• Sentiment favors higher prices as of Feb. 7.
• The short-term trend is up as of Feb. 4.(changed from "not sure" last week)
• The medium-term trend for Treasury bonds is up as of Jan. 25 (prices higher, yields lower). 

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 because the stock market can do well regardless of which political party is in control