There were quite a few buying climaxes this week, such as the example shown below, where the high and low of the week engulfs the range of the previous week and the price closes near the low. It's often a sign that there has been a peak in bullish sentiment.

I think everyone who trades stocks was well aware that bullish sentiment had reached a level that was too high and that the market probably needed some event such as the tension with Iran to snap us all back into reality. I'm not minimizing the seriousness of what has happened, but I am saying that something was likely to happen that would reverse the excessive optimism.

This chart below does a good job of showing that bullishness had become extreme and is now probably starting to reverse lower.

The market was certainly rattled on Friday, but it wasn't a distribution day, at least based on this chart. However, at Investor's Business Daily they did count it as distribution for the SPX because their chart shows an increase in volume over the previous session. I am not sure how it is that their data is different than this chart shown below.

The Summation looks ready to roll over which means the short-term trend has probably peaked.

The PMO Index ticked lower, although there was a similar tick in early November that was a false alarm, so we know there are occasional ticks lower that are quickly reversed.

I think stock market participants are probably going to be waiting a bit before getting too worried about what is happening in the Middle East. I suspect, though, that most people will want to get off margin, capture some of their gains and raise cash next week while they wait to see what happens. So this means we'll have at least a choppy market next week.

Treasury Bonds

This chart shows that yields have corrected back to their 40-week averages, and that they may be ready to start to move lower again (prices higher, yields lower).

I am not at all ready to say which way this bond market is headed longer-term, but shorter-term this looks like a good point to be a buyer with a stop if yields move above the 40-week.

Here is the view from bond prices. All three of these ETFs look bullish to me.

The charts look good short-term but there are plenty of issues impacting bond prices longer-term.

Sectors

Here is the spreadsheet I use to track sector strength. Not much is new from last week. Defense stocks have gained strength, dividend payers ticked lower,

Defense stocks broke out.

Outlook Summary

The long-term outlook is weak growth as of Oct. 5.  

The short-term trend is down as of Jan. 4. 

The medium-term trend for the price of Treasury bonds is down as of Oct.11 (prices lower, yields higher). 

Investing Themes:

Technology (IYW),  Semiconductors (SOXX), Smart Infrastructure (GRID), Health Care Providers (IHF), Silver Miners (SIL), Gold Miners (GDX), Clean Energy (ICLN), Defense (XAR)

Strategy During a Bull Market:

• Buy large-cap stocks and ETFs at the lows of the medium or short-term market trends
• Buy small-cap growth stocks on breaks to new highs in the early stages of market trends
• Reduce buying when the market trend is at the top of the range
• Take partial profits when the market uptrend starts to struggle at the highs
• The cardinal rule is never invest based on personal politics because the stock market can do well regardless of which political party is in control