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I'm not sure what is happening in the stock market at the moment. Most stocks appear to be correcting and consolidating the big gains of the final two months of 2023. The true market leaders, however, finished correcting in mid-January and have been moving higher since then.

The chart below is a look at the bullish percents of the two major indexes. The SPX bullish percent has continued to decline, although not by much, since the first of the year. So, there hasn't been much of a correction for these stocks, but this definitely doesn't show a new short-term uptrend.

The NDX, on the other hand, definitely started to move higher a week ago. However, on Friday, it turned lower again. If you look back to the November-December period, this index doesn't follow the short-term trend as well as the SPX, so it isn't as reliable as a market indicator.

The bullish percents above are not confirming a new short-term uptrend, but the buy-write indicators shown below seem to be. These indicators are moving higher consistently and are looking quite positive.

The summation indicators shown below are similar to the bullish percents, as they moved lower so far this year, and there is no short-term uptrend showing up in this chart. However, they do have the look of an indicator that is bottoming out and has the potential to move upwards soon.

The SPX market-cap-weighted index couldn't look better, and the volume has been confirming the move higher. The SPX broke out a little over a week ago, and it has looked good since.

However, the SPX equal-weight index shows sideways, corrective behavior that is consistent with a short-term downtrend. Based on the price pattern in this chart, I can easily imagine the RSP breaking to new highs within a couple of weeks.

Bottom Line

I'm bullish on stocks, but I just don't have enough insight into how the market will behave short-term. I'm about 70% invested in stocks, and 30% is in cash. On Wednesday and Thursday, I trimmed my holdings down from fully invested. I'd like to see the market breadth increase next week before putting available cash back into stocks.

Treasury yields didn't do much last week. These look like sideways moves to me. The most favorable thing that yields can do for stocks is to move sideways, because if they move down too far, investors will question the health of the market, and if they move up too far, it would put pressure on the high stock valuations and stock prices would come down.

Technology seems to be the overwhelming story of the stock market at the moment. These stocks sold off a bit on Friday, probably because prices we getting extended.

Last week, I had thought that these two groups were to break to new highs. However, there was disappointing guidance from the largest home builder, and it sent most of these stocks lower.

I have always thought that major recessions are the result of oil prices moving too high. At the moment, oil prices are cooperating nicely by trading under the $80 level, and this could help stock prices move higher. If the price of oil starts to move into the $80-$90 range, however, stockholders will perk up and start to worry about the negative impact of higher oil prices. The recent oil price rally hasn't gone unnoticed, but it is still at harmless levels.

This following chart really helps me. This indicator provides a look at the longer-term view of the market. If it is rising as it is now, I trust that any market pullback will be temporary and that the trend toward higher highs will continue.

Here is something to worry about. The yield curve is still inverted, and an inverted curve is generally not good for stock prices. Some say that the real damage to stock prices occurs when the inversion starts to fade and yields go back to being properly aligned.

Here is an old chart that I updated to include the 2020 period. The chart shows 30 years of the 3-month yield and its 50-week moving average. During the three times that there was a major move lower in this yield, it resulted in a recession.

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 up for Treasury bond prices as of November 2023 (yields down, prices up).

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