SPX To Be Tested Short-Term

Is the market trending higher or lower in the short-term? It's hard to tell. The market rebound was so strong early in the week, but now a bit of weakness has set in again. So, I'm not sure, but because the market seems extended my guess is that a period of consolidation is likely. I would expect the 3200-level on the SPX to be tested again in the short-term.
 

Stocks sold off on Friday, but the volume was lighter.

Volume may have been light, but new 52-week lows perked up.

Last week I tried to re-institute the medium-term trend indicator, but now I am wondering if a medium-term sentiment indicator might be better. I need a medium-term signal to help me decide what percentage of cash to raise when the market appears to be topping out in the short-term.

In my experience, when the number of bulls is under the 50-level, it is generally bullish for stocks from a contrarian point-of-view.

Because the sentiment survey supports higher stock prices, I think a level of 15-20% cash is appropriate for me right now as the market struggles and prepares a footing for the next short-term leg up. If the level of bulls were closer to the 55-60 level, then I probably would target a larger percentage of cash such as 30-35%. In addition to the percentage of cash, I also look at the type of stocks that I am holding and target less volatile holdings when the market is looking toppy.

Looking at this chart, starting in October, all I see are buy signals on both the breakouts and the retests of the trend lines.

Money growth continues to be strong which supports higher stock prices.

Semiconductors continue to lead higher, and in a big way. How high can they go?

This chart shows that over the past year the net advance/decline ratio has been confirming the price movement of the SPX fairly well... until this past week when the highs of the SPX weren't confirmed by the ratio. Is it a big deal? I doubt it except that it may support the view that the market is probably ready to move sideways for a bit. There was a similar small divergence in July that led to some short-term selling.

I continue to believe that bull markets don't last forever and that this one can't last too much longer. But, I can't really find much in the charts that says the end is near. So, for now, despite my deep down pessimism, I'm a bull and I continue to own stocks.

Side note, I'm going to be voting for Michael Bloomberg in the California Democratic primary.

Outlook Summary

• 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 not sure as of Feb. 7. 
• 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