Image Source: Pixabay

The PMO appears to be near the bottom of its range, and the momentum indicator of the advance/decline line has turned lower. This would indicate that most stocks are experiencing a short-term pullback in price.

The Summation has also turned lower, confirming the indicators shown in the previous chart.

The major indexes have spent the last two weeks struggling to hold above the moving averages. They have been hanging in there so far, and it looks like it could be a normal consolidation after a run to new highs.

Both of the S&P ETFs have modestly broken below their uptrend lines, serving as further evidence that stock prices are in the process of consolidating. If prices break below the horizontal levels, then I'll view the price consolidation a bit more seriously. For now, I think we have a healthy and well-deserved pause in the uptrend.

Building and construction stocks are still trending higher, but home builders are slightly weaker -- probably due to the slight tick higher in the 10-year yield. These charts remain very bullish.

Energy stocks have been the most recent leaders, but now they look extended over the short-term. I'd be a modest buyer on price pullbacks.

Financials are the last group that you'd expect to perform well during a prolonged period of yield curve inversion, but here you have it. This is a very nice-looking chart, with only the slightest sign of recent weakness.

At Investors.com, they are warning that the market has accumulated quite a few distribution days. Clearly, the market is exhausted and ready for a vacation, but so far there is little to suggest that a major price correction is about to take place. Still, you have to be ready for the possibility.

Bottom Line

I have a healthy amount of cash in my trading accounts, and I even trimmed my longer-term positions a bit. We've had a really good stock market run, and I don't want to let the gains slip away by being too aggressive.

Meanwhile, rather than endlessly listen to discussions about what the Federal Reserve might do next, I would much rather look at yields and just see what they are doing. I think the Fed Rate will follow yields.

At the moment, longer-duration yields are moving slightly higher and are contained to the downside by their 50-day moving averages. I think this is what we want to see because it reflects economic growth, but is gradual enough that it doesn't push stock prices lower, at least for now.

I'm including this chart just as a reminder that the yield curve is inverted, and to also remind that an inverted curve has always been regarded as very negative for the economy and stock prices. On CNBC, they recently discussed what investors are most worried about. If they had asked me, I would have voted for this chart.

The ECRI leading index projects solid economic growth over the next four months or so, but they are also warning of the risk of rising inflation.

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 Feb. 1 (yields up, prices down).

More By This Author:

Selling Pressure In The Uptrend
A Surprising Uptrend
The Short-Term Trend Is Uncertain, But Stocks Are Showing Momentum