The Short-Term Trend

The short-term downtrend continues, although there were several days when it didn't feel like a downtrend. More like an uptrend. However, the chart below shows that the majority of stocks have seen their price-momentum weaken over the past six days, even though the major indexes continued to perform well.

The 10-Day Call/Put ratio is pointing lower, which helps confirm the downtrend that is shown in the chart above.

Here is a look at the SPX and its momentum indicator. The stock index was higher last week while the indicator continued to move sideways, which sets up a minor bearish divergence. 

My guess is that the majority of stocks are taking a rest before moving higher again soon. My accounts are about 10% cash at the moment. This level of cash means that I am not feeling the need to play defense in my accounts, but I do still feel the need to have some cash available to take advantage of opportunities.

The Longer-Term Outlook

The money supply growth came roaring back this past week. The strength of the money supply favors economic growth and higher stock prices.

The ECRI index just keeps rising higher and higher, and this favors the economy and higher stock prices.

The gold and silver miners want to break above their downtrend line. The leading stocks in this group look bullish to me.

The US Dollar is tumbling lower as it often does when the economy is bouncing back from a shock. This favors the stocks that benefit from early economic recovery.

The 10-year Treasury yield looks poised to break above the 1% level. Rate-sensitive stocks should benefit, but I'm not sure what the impact will be on the rest of the market. Generally, I think of rising rates as hurting high PE stocks, but at the moment the stocks with high PE's have so much momentum that I'm not sure what will happen to them.

I have one account that I dedicate to long-term holdings of small growth stocks, and, as you can imagine, these stocks have done well recently. But is this recent strength a blow-off top? And if rates rise sharply, will that result in an equally sharp reversal in the stocks? I don't know, but I'm watching the account carefully.

I don't have much more to offer this week. Not too much has changed from last week. Stock prices seem to be in an unstoppable trend higher. So, what to look for? I think the biggest challenge is to navigate accounts into the most profitable areas of the market rather than trying to be either in or out of stocks.

Outlook Summary

• The short-term trend is down for stock prices as of December 11.
• Contrarian sentiment is unfavorable for stock prices as of November 14.
• The economy is in expansion as of September 19.
• The medium-term trend for treasury bonds is down as of October 10 (prices lower, yields higher).