Not Like Most Downtrends

The Short-Term Trend

The short-term downtrend continues, although the PMO index is now near the bottom of its range. This trend isn't like most downtrends because it is as much about rotation as it is about selling. However, rates really spiked higher on Thursday, and that brought down all stocks. 

I heard some people talk about selling on Thursday and Friday, but it was too late for me to be selling. That isn't the way I want to trade stocks. For me, when the PMO at the top of the range and the short-term downtrend starts, I have to raise some cash so that I won't feel as much pressure to sell when the PMO is near the bottom of the range.

Easier to say than to do, however. Note to self, raise a bit of cash when the PMO is at the top of the range and raise a bit more cash on the first signs of a new downtrend. 

The 10-day call/put was slow to roll over, but it got serious with a big red bar on Friday. Sometimes this index will turn higher just before the market turns upward too, so I will be watching.

The number of net new highs/new lows dipped under the zero-level for the first time since the market corrected just before the Presidential election. This tells me that this selling is more serious than a periodic, short-term sell-off, and maybe that is a good thing.

There is a lot of froth and excess in this market and it is now being rinsed out. At least, I hope so. Also, keep in mind that when new lows spike higher while the PMO is near its lows, it often means that the downtrend is bottoming out. It can be a signal to start looking for signs of the next uptrend.

The chart below shows just the number of new lows, and what jumps out is that the new lows are all in the NASDAQ, which points to the rotation out of high-PE technology and into lower-PE cyclicals. The bad news is that our favorite tech stocks now have a market rotation headwind, but the good news is that this is normal for the second stage of a rate-cycle within a strong bull market. 

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Disclaimer: I am not a registered investment adviser. My comments reflect my view of the market, and what I am doing with my accounts. The analysis is not a recommendation to buy, sell, ...

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