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We finally got a nice, new short-term uptrend after months in which the short-term cycle was unclear. It was important to deploy cash into stocks quickly though, because as you can see from the chart below, the PMO index has already moved close to the top of its range.

I have found that the best opportunity to buy stocks to take advantage of the short cycle is when this PMO index is just starting to move up from the bottom of its range. Once the PMO gets to the top of the range, a little more buying caution is required, and once the PMO has been at the top of the range for a period of time, then I start thinking about capturing and protecting profits.

When the PMO index became so choppy starting in May, it was no longer useful for trading purposes. So, I put together the chart below which has the momentum indicator of the NYSE common-stock-only advance-decline in the bottom panel, which provides clean-looking buy/sell signals. This chart has been very helpful, and I think I'll continue to use it going forward because the momentum crossovers provide confirmation of the signals from the PMO.

The bullish percents also provided some very nice confirmation of the short-term uptrend that started on Thursday. These two indexes are now pointing decisively higher. This is a bullish indicator.

Speaking of nice confirmations, check out the junk bond ETF below, which surged upwards along with stocks this past week. This chart gives me the green light to own stocks.

The number of new 52-week lows dried up on Thursday for the NYSE (although it is still a bit high for the Nasdaq). The lack of new lows is a very important signal that it is time to get back into stocks.

However, we need to monitor this chart every day to make sure that the number stays at a low level. There was another period in late August that looked promising for stocks because the new lows dried up, but in early September, when the 52-week lows became elevated again, that was the signal that heavy selling of stocks was back. The bottom panel on the chart provided shows total US net new lows, which went positive on Friday.

Bottom Line

I'm now about 80% invested in stocks, and I'm so glad to see a clearer-looking short-term cycle. I'm feeling good that I'm at 80% in stocks, and I'm also happy with the fact that I was quick to get back into stocks when the indicators turned favorable. I've made my share of trading mistakes this year, so I need to manage losses aggressively just in case this new uptrend turns negative.

There has been lots of talk about why the market bottomed out and turned higher this past week. The market was, of course, very oversold, and it also was transitioning into the most favorable time of year for higher stock prices. Yields and oil prices both came down, which also spurred on the rally in the markets.

The 5-year yield broke down below a clean uptrend line, and the 10-year and 30-year yields broke down from their accelerated trend lines. 

Oil prices pulled back nicely from the September highs, and also broke below a support level.

I don't have too much more to add regarding why the market bottomed out this past week. Also, after such a painful summer for the market, let's not get too far ahead of ourselves and assume the correction is done.

I did notice this very nice-looking bullish flag on the weekly QQQ chart. This is definitely promising, and the SPX has a similar pattern. This is my favorite area of the market at the moment.

There aren't many industries ready to break to new highs (or above significant resistance), but there are a few. These two look promising.

Outlook Summary

• The short-term trend is up for stock prices as of Nov. 2.
• The ECRI Weekly Leading Index points to economic recovery as of July 2023.
• The medium-term trend is down for Treasury bond prices as of August 2023 (yields up, prices down).

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