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The general market's short-term downtrend looks set to continue, which means that we will sit and wait for signs that the market is bottoming out before making any significant new purchases. Also, it is probably too late to do much selling unless there is a decisive sell signal like a high-volume slice below the 50-day moving average.

It was a rough week for stocks, and I expected that with so much selling, the PMO index would finally touch the bottom of its range. I like to see it touch its lowest level because that means the market is washing out any remaining short-term bullishness.

It would be nice for the PMO to fully sell off down to the very bottom of its range, but it isn't required. With the PMO at this level, it means that most stocks have experienced selling pressure and that the short-term cycle is playing out as usual. So, within a week or two, we will begin to see the telltale signs of the start of the next short-term uptrend.

The bullish percents of the two major exchanges continue to point decisively lower, and it looks to me as though they have some downside room remaining before the decline will start to slow. I will continue to watch these indicators for chart patterns similar to those seen in mid-March and late-May as signals that stocks are gearing up for the next rally.

The summation index and the SPX Advance/Decline momentum also point decisively lower. These indicators are pretty reliable, but the buy signal will occur later than the subtle hints of new market strength. An upturn in the PMO index, for instance, will occur in the days just before these two indicators shown below turn higher.

It is probably a week too soon to expect the market's short-term price downtrend to be bottoming out. Still, I'm watching closely for market hints and the less obvious signals that major investors are starting to buy this dip. 

It is tempting to see the current market action and think that it is the beginning of a major market sell-off. Of course, it is always possible, but the most likely outcome is that this selling is part of the normal short-term cycle of which there are about six per year. In other words, the market generally gives us about six good buying opportunities per year.

Longer-term Treasury yields have been in a sideways trading range since the fall of 2022. Lately, these yields have started to challenge the highs set in October of 2022. When, and if, they break above these highs, then we'll have the start of a new trend. Until then, I'm staying neutral on yields.

The ECRI leading index has leveled off, which is a bit disappointing for bulls, but it is well above the zero-level and continues to point to economic strength that favors high stock prices.

Outlook Summary

• The short-term trend is down for stock prices as of Aug. 2.
• The ECRI Weekly Leading Index points to economic recovery as of July 2023.
• The medium-term trend is uncertain for Treasury bond prices as of February 2023.

More By This Author:

Preparing For The Next Short-Term Rally Higher
Stock Price Trends Are Out Of Sync
The Second Week Of Market Uncertainty