A Short-Term Negative Divergence

The short-term uptrend continues, but it is starting to feel a bit like a melt-up, which has me concerned. Last week, I showed a number of charts indicating that momentum and breadth could be nearing a short-term peak. Those charts all pushed even higher, which has been profitable, but this also makes me want to raise cash a little more aggressively by selling laggards and taking partial-profits.

The market is setting up a minor, short-term, negative divergence.

The Dow Diffusion indicator is looking toppy.

The Bitcoin index peaked this week, and I wonder if this is a message for the stock market as well.

The Longer-Term Outlook

The ECRI index continues its steep climb higher, thus indicating healthy economic growth four to six months ahead.

The NASDAQ is breaking out of a nice-looking base pattern.

At 64% bulls, it is time to be very cautious regarding stock prices.

The CNN index is in the extreme greed range, which also works against stocks from a contrarian point-of-view.

Where are bond prices headed? Based on this chart alone, I would be a potential buyer, with prices in a multi-year rally and now finding support at the uptrend line. However, it is difficult to be bullish on bonds with the gigantic federal deficit and the early signs of inflation. So, I'm still bearish on bonds for now, but I will change my tune if they rally from here.

One possible scenario that concerns me very much is a sharp drop in bond prices below this uptrend line. That would mean sharply higher rates -- and the sharply higher rates would put immediate downward pressure on the prices of some of the high-flying technology stocks. Rising rates combined with the excessive stock market bullish sentiment could result in some painful losses in my accounts.

At the moment, my accounts are currently at 19% cash, and I will be looking to increase my cash level in the coming week. Note to self: It is time to trim holdings so that I don't panic and sell at the lows, and so that there is cash available to be deployed when risk-reward favors reward.

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Disclaimer: I am not a registered investment adviser. My comments reflect my view of the market, and what I am doing with my accounts. The analysis is not a recommendation to buy, sell, ...

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