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It looks like a short-term uptrend began this week, and this means that I will be deploying some of my available cash and adding to positions cautiously. I say cautiously because this has been such a choppy market so far this year that it has been hard for me to position my accounts properly. 

I believe a short-term uptrend began this week because the PMO index in the top panel of the chart below showed a couple of white candles and moved up and off the extreme low of its range after being there for a couple of weeks. This type of behavior for this indicator is usually a fairly reliable short-term buy signal. 

Confirming the move of the PMO is the A/D line momentum indicator in the bottom panel that is just now curling higher off a low level, which also looks like a very nice buy signal.

Despite the nice buy signal shown above, not all the charts are giving me the confidence to buy. This chart of the SPX equal weight doesn't look that great. Friday's action moved the price above the 20-day average, but it is still below the 50-day, and the ETF's close on Friday was relatively weak based on the day's trading range.

The SPX cap-weighted ETF price was better, with a nice break above its downtrend line and a close above the week's high. Volume wasn't bad, but it was below the selling volume seen on Tuesday and Wednesday.

This next chart shows that the three major indexes all remain below the 50-day. I won't deploy too much cash until these indexes are trading above their 50-day averages.

The bullish percents of the two major exchanges moved higher and look convincingly bullish, which is a very good sign in regards to improving market breadth.

In general, it can often be a good idea to trade in the same direction as junk bond prices, and this ETF has been showing some promising price action.

Bottom Line

Based on the first chart showing the PMO moving off its lows, I feel confident that a short-term uptrend has begun. However, the weakness in some of the other charts, combined with a well-deserved sense of caution towards this choppy market, means that I'll keep a healthy amount of cash on the sidelines. My purchases will probably be focused on the leading sectors, which are technology and industrials.

Even though the short-term price action shows promise, it is a good idea to keep in mind that many traders and investors will be positioning accounts conservatively in the coming months because of the Presidential election. In fact, many people, including myself, will be holding plenty of cash as election day gets closer.

One reason for the improved price action of stocks is the weakness in Treasury yields. My guess is that as long as yields remain below their late-April highs, stock prices can move higher.

My favorite longer-term market indicator is this cumulative weekly chart of the new highs/new lows. There was a brief dip last week into a sell signal, which reversed this week. If you look back over the past two years, you can see that this happens frequently. For now, I'll regard this as a medium-term buy signal, but I wouldn't be surprised at all to see it flip again into a sell signal that may last for a number of months.

Here is another chart that provides a decent look at the medium-term trend. This is simply a weekly momentum indicator for the SPX, and right now it is signaling a sell signal consistent with the signal shown in the chart above.

Building and construction were disappointing on Friday. They showed very nice breakouts, but then had very weak closes at the lows of the daily range.

Technology, on the other hand, gapped higher and nicely held on to the gains.

The weekly chart shows that the recent pullback in prices held above the uptrend lines, although I'm admitting to a creatively drawn uptrend line for the Semiconductors.

China and emerging markets are showing promising longer-term price reversals.

Outlook Summary

• The short-term trend is up 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 Feb. 1 (yields up, prices down).

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