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It seemed like it took forever, but we finally got a new short-term uptrend this week. Starting Wednesday, the market's short-term cycle transitioned into higher stock prices.

All three major indexes closed the week with strong price action and were trending well above their five-day averages. However, looking at this chart, the low of the previous short-term downtrend was mid-March, and it would have been generally profitable to have bought at that low.

The NYSE bullish percents began pointing upwards in earnest on Wednesday, and the Nasdaq followed higher on Thursday. This chart shows a very nice start to a new uptrend after two or three weeks of bottoming behavior that developed into a setup for higher prices.

The SPX chart looks quite good. The momentum indicator has curled upwards off a low point below the zero level, the moving averages are aligned correctly, and the market closed above a buy point on Friday. I'm not seeing anything to complain about here.

The cumulative advance-decline lines confirm the new short-term uptrend. The NYSE line is looking good. The way the Nasdaq line is trailing is not optimal, but I think it is passable for now. 

I've been relying on this NYSE common stock-only summation indicator a bit more than usual because it has been tracking the market so well. As you can see, it gave a clear reversal signal on Wednesday after hinting that the market would turn higher starting on Monday and Tuesday.

Earlier, I pointed out that you might have started buying into the new uptrend around mid-March based on the five-day averages of the major indexes, but this summation index signal is so much cleaner and seems to be worth waiting for.

The buy-write indexes have been very useful as well. Both the Nasdaq and SPX indexes bottomed in mid-March and then held their five-day averages through all the bottoming action of the following two weeks that included a banking crisis.

I mention this because I struggle a bit with whether I should wait to buy into the market when the new uptrend is confirmed by an indicator such as the summation, or whether I should start buying earlier when there are early signs of strength such as the chart below. 

The drop off in the level of NYSE new lows began to confirm the market's strength starting on Monday. A number under about 50 for the NYSE is generally harmless. The drop off in the level of Nasdaq new lows is significant, but it remains way too elevated and tells me that even though stocks are rallying short-term, the market is still unhealthy and vulnerable to larger declines.

In other words, even though the next several weeks may be quite profitable, there is still every reason to be cautious about stocks. I'll be taking full profits when the time is right rather than partial profits as I usually do.

Bottom Line

I'm a market bear, but I am trying to trade stocks to take advantage of the short-term uptrend. My accounts are currently about 40% long stocks, 5% long Treasuries, and the rest is uninvested cash, and I've been moving some of the cash from the brokerage account into FDIC savings accounts.

Considering how nice the chart of the SPX looks, I feel like I should be more aggressively long. However, after consideration, there are so many market risks that being less than 50% long looks to be the best choice at the moment.

The following chart shows that fixed income had a strong rally on Friday after the decent inflation news in the morning. I like the look of this. I think we should welcome it when fixed income and stocks rally on the same day.

Friday's nice fixed-income action was well within the range established quite a few months ago, but I still don't know where yields are headed longer-term, although as a bear I suspect yields are headed lower and prices higher. The chart above shows prices and the chart below displays yields.

Commodities are still in their downtrend, although if the price of this ETF breaks above the downtrend line, it could turn out to be a longer-term basing pattern. For now, I assume that the downtrend will continue.

This is a chart of an ETF that holds stocks in one of my favorite areas of the market. The chart pattern looks like a cup-with-handle, where the handle is the minor pullback in prices that occurred over the last few weeks. A break above the dotted resistance line would be significant, and it would be a buy signal as long as prices hold above this level.

Outlook Summary

• The short-term trend is up for stock prices as of March 29.
• The economy is at risk of recession as of March 2022.
• The medium-term trend is uncertain for Treasury bond prices as of Feb. 4.

More By This Author:

The Start Of A New Short-Term Uptrend?
Too Much And Too Soon For A New Short-Term Uptrend
Approaching A New Short-Term Uptrend