The Next Short-Term Uptrend

The Short-Term Trend

A short-term downtrend began on Thursday, June 11. The PMO index has now reached the bottom of its range, which means that in a few days we will start to look for signs of the next short-term uptrend.

Here is another look at the PMO indicator. The turns in the PMO of the Wilshire have occurred just a couple of days before the broader, equal-weight PMO index, as shown in the bottom panel.

Here is a different view of the short-term cycle, using a basic stochastic on the SPX equal-weight index. In a few days, maybe a week, the stochastic will be at the bottom of its range, and this is another short-term signal to start considering putting any available cash back into stocks.

This chart shows the SPX and the NYSE new 52-week lows from the December-February time period. You can see that the number of 52-week lows was elevated, while the index was trading above its 20-day average and pushing up to new price highs. That's a bad sign.

If the index is showing strength while the number of new 52-week lows is elevated, you need to be worried about the underlying health of the broad market. 

So, what was the number of new 52-week lows showing us just before this recent market weakness? There were very few new lows, and I believe it means a healthy market in the short-term.

Although, these are unusual times so I am prepared to move quickly if conditions change. (These moving averages also point to a healthy market.)

This is a chart of the ETF that holds the top-ranked small-cap growth stocks, and from its price action, you would never know that the broader market has experienced weakness over the last seven trading days. These stocks have probably run-up to a point where they need a rest, but in my opinion, this is still the best area of the market to be invested.

Outlook Summary

• The medium-term trend is down as of February 26
• The short-term trend is down as of June 11.
• The economy is in recession as of March 28.
• Contrarian Sentiment favors lower prices as of June 6.
• The medium-term trend for Treasury bonds is up as of January 25 (prices higher, yields lower).