I can't believe it's May already. I think we have a new short-term downtrend as of Friday, although I wouldn't be surprised to see more choppy, sideways market behavior. This has been a really tough market to follow. 

You can see the change in the character of the market in the PMO chart below. Starting in mid-March, the PMO index has been unable to reach the top and bottom of its range, and starting in mid-April a couple of sharp changes in direction have not shown any follow-through. It could be a consolidation of gains before the next major leg upwards, but (with a reminder that I am a market-pessimist) it could also be a larger topping process.

The first step in determining if there is a new short-term downtrend is to see the SPX trading below its five-day moving average. This chart shows the SPX below the five-day, but just barely, and it isn't very convincing.

The weakness in the Call/Put index is more convincing. In addition to a big red bar on Friday, there is a pattern of lower highs and lower lows, and it feels as though the index is getting ready to break down to a new low again. 

The SPX summation index has not rolled over yet (chart not shown), but the NDX summation index certainly has the look of an index headed lower after a nice rally.

The bullish percents ticked lower on Friday, but also not convincingly so. There isn't too much to read into this chart, except that it isn't yet confirming my call that a new downtrend has started.

The SPX bullish percent is at an overbought level, and at a minimum it is a technical signal to postpone major purchases from among these stocks. The Nasdaq bullish percent shows that only 60% or so of these stocks are participating, but I think that is its more natural level if you look at previous years.

The number of new 52-week lows has crept up just a bit again on the Nasdaq. Anytime it is above the 50-level it gets my attention, and it isn't good to see it elevated with the PMO near the top of its range. 

I mentioned earlier that the choppy market might be an indication of a larger topping process, but I should now mention that it is unlikely that the market forms a major market top without a significant number of new 52-week lows. 

In other words, at this moment, this chart tells me that the larger market uptrend is not under pressure and that we have just another short-term market oscillation, of which there are usually six or so per year. 

However, and this is really important, I am keeping an eye on this chart because, over the last three months, the trend for the level of Nasdaq new 52-week lows has been elevated and could be indicating a problem. It was just a couple weeks ago that there were way too many Nasdaq new lows. Eyes need to be open here.

Below I am showing you (and reminding myself) why I think there are usually at least six short-term buying opportunities in any 12-month period of time. If you go back over time, most 12-month periods look a lot like this. There are a few exceptions, one of which was 2006 which I described last week.

Yesterday I was in my car for a couple of hours, which is a really long drive for me, and I used the opportunity to listen to Jesse Livermore's early 20th-century book about trading. He warns against overtrading, of which I have been a bit guilty lately, and he says that there are usually about four really good opportunities to buy stocks in any year, and if you are patient and take advantage of this timing, then it is a cure for overtrading. 

Livermore believed that over-trading hurts results and is the result of impatience and lack of preparation, and that all that frequent trading does is define pivot points on the chart for more disciplined traders to profit from. That definitely put me in my place as a too-frequent trader, but also reassured me that the method I describe every week of using short-term cycles to buy stocks is the right method for me. At the moment, because of Livermore's comments, I am feeling even more committed to this strategy of buying at the lows of the short-term cycle.

I think my recent tendency to over-trade is the result of the success of last year, and particularly early this year when so many of the small, speculative stocks I was buying showed immediate gains, even if purchased when the PMO was near the top of the range. Without realizing it, I am trying to recreate the thrill of this past period. So, it is time for me to get back to the less thrilling but also profitable discipline of patient and thoughtful stock trading.

Last week, I also mentioned that I wanted to be better at letting the market stop me out of positions rather than my tendency to automatically raise cash based on indicators. The reason for this is that when the market starts to chop like it is now, indicators are much less useful and they whipsaw with the market.

So if I automatically raise cash, I have too much cash on hand, it burns a hole in my pocket, and I end up trading without profit. I'm not backing off from the idea of raising cash when the PMO is at the top of the range, but I am suggesting that taking partial profits in order to raise cash can also be done by using stops rather than sells based only on market timing.

Changing topics a bit, here is a look at the TLT chart which had been counter-trending higher. Near the close on Tuesday, I went short Treasuries and the stop will be this overhead resistance line. However, so far it looks like the TLT is just moving sideways.

Below is a look at the PMO for the TLT, and it hasn't yet signaled a sell, but it looks to be close.

Below is a look at the US Dollar. Trying to determine the trend of the dollar gives me fits. I'm wrong as often as I am right, but based on this chart, at the moment, it looks like the dollar retested its recent lows and now wants to retest its recent highs. If this is correct, then in the short-term this could mean that some of the leading inflation-sensitive stocks will pullback in price.

Note to self; most of the money I have made in the stock market over the years is from buying stocks during the short-term corrections, not from active trading. This means patiently waiting for, and then seizing, the right opportunities to buy. It is a really good strategy to make money, so I'm sticking with it.

Outlook Summary

• The short-term trend is down for stock prices as of April 30. A change in the trend is present.
• Contrarian sentiment is unfavorable for stock prices as of Nov. 14.
• The economy is in expansion as of Sept. 19.
• The medium-term trend for treasury bonds is down as of Oct. 10 (prices lower, yields higher).