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What a week. Monday started with a huge gap down, followed by a big fill-the-gap rally on Tuesday, and then the week ended with an extremely negative reversal based on political news.

The PMO index is now pointing lower. This sure looks like a sell signal, but it isn't being confirmed by the other indicators yet. However, this is enough for me to switch to being cautious and defensive over the short-term. I will not be making any new purchases, and I'll raise some cash.

The bullish percents haven't pointed lower yet, probably because of how the sell signals are calculated. These indicators are live during the trading session, so I'll be watching to see how they do on Monday.

The Summations still point higher, although it does look like they may be ready to roll over. These indicators often lag a bit.

I'm watching this next chart closely. I don't want to see the AD line break below the red uptrend. If it does break down, that will be an additional caution signal. 

Junk bonds continue to look healthy, although Friday's session took down the junk bond ETF the same way it took down stocks.

Bottom Line

This was a really bad week, and I'm inclined to be cautious next week even if stocks were to surprise me by rallying. Treasury yields have behaved well lately, which has at least temporarily removed them as the central issue pressuring stock prices.

The longer-term trend for stocks seems to be pointing upwards based on this indicator.

This next chart looks okay. It shows that the weekly price range of the ETF continues to respect the uptrend line, and that is a positive for sure.

The QQQ has basically moved in a sideways range for about nine weeks. At the moment, this range looks like a bullish base pattern, but it also wouldn't be the least bit surprising to see it break down below the uptrend line if the negativity of the past week continues. If this ETF breaks down, I will be a strong seller.

Outlook Summary

• The short-term trend is up for stock prices as of Jan. 15
• The ECRI Weekly Leading Index points to economic recovery as of July 2023
• The medium-term trend is neutral for Treasury bond prices 

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