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The strong uptrend that started in late October has been displaying a bit of selling pressure lately. The NDX closed under the 20-day EMA on Friday, and it could be rolling over. In fact, the NDX hasn't had a closing high in a couple weeks. On the other hand, the SPY looks a lot better and is still above the 20-day. So, it is too early to say that the market is correcting, but there is enough evidence of selling pressure to convince me to be cautious.

Some of the indicators I follow have been showing weakness, such as the SPX Summation Index provided below. I see it as a signal to raise cash.

The PMO index has continued to show weakness, although I don't think I've ever seen this indicator show such market choppiness as it has in February and March of this year. It really isn't much help -- except to say that in a healthy market, the PMO would not look like this. The top panel of the chart below shows momentum getting close to rolling over, which is another "raise cash" signal.

These ETFs have been the market leaders. The XLK technology ETF has broken below its uptrend line as of Friday, and the semiconductors look like they are close to breaking down. These ETFs certainly deserve a consolidation period after such a strong run.

I think I have made the point that the market's uptrend is still intact, but that there is enough weakness to be raising cash and resisting aggressive new purchases. I raised quite a bit of cash on Thursday and Friday, partly to be cautious and partly because I wanted cash to buy into stocks that are just starting to emerge into new highs.

There is so much discussion about the Fed and whether they are going to lower rates. It is seemingly endless. I would rather watch the chart below than talk about the Fed anymore. The Fed Funds rate usually follows the 2-year Treasury yield, and at the moment it looks like the yield is rising, which makes it difficult for the Fed Rate to come down.

The longer-dated Treasury yields perked up this past week, and they look to me like they may be ready to trend higher. If these yields do exceed the February highs, it would probably add selling pressure to the stock market for a while.

This next chart helps to evaluate the longer-term trend of the stock market. With net highs/lows pointing decisively higher, I'm optimistic about higher prices, even if there are some shorter-term dips in stock prices.

The ECRI leading index continues to look good and forecasts a healthy US economy, which favors higher stock prices longer-term.

Outlook Summary

• The short-term trend is uncertain for stock prices.
• The ECRI Weekly Leading Index points to economic recovery as of July 2023.
• The medium-term trend is down for Treasury bond prices as of November 2023 (yields up, prices down).

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