The Market Won't Be Rushed Into The Next Short-Term Downtrend

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The short-term uptrend appears set to continue. It didn't feel like an uptrend on Tuesday and Wednesday, but the market showed strength into the close on Thursday, which was a signal that it would not be rushed into the next short-term downtrend.

The SPX pulled back, but the weakness should not have been too surprising since it was up against the early February resistance. This is a good-looking short-term chart. The moving averages are aligned correctly, and the momentum indicator is pointing higher. It looks like a base has formed as a setup to move prices higher, so this chart says not to get too bearish too soon.

Above is a daily chart, and here is a look at the SPX weekly chart. This chart has a more neutral look to me, and it could go either way.

A bear would probably say that the 2022 decline was overdone, so the index has moved sideways for a number of months and has now caught up with its downtrend that will soon resume with lower prices. Meanwhile, a bull could look at this same chart as an inverted head-and-shoulders base pattern that is ready to break out above resistance.

This is my go-to chart at the moment regarding the short-term trend. When this indicator shows the next red candle, it will be the short-term market sell signal. The SPX is in the lower panel to show that the highs and lows of the indicator correspond well with those of the SPX. At the moment, the indicator points to higher prices.

Junk bonds have continued to perform well, and they appear to be pushing higher. Don't get too bearish toward stocks unless this chart starts to show weakness.

New 52-week lows continue to be mixed. The NYSE new lows are at harmless levels, although Wednesday's level was a bit of a concern. On the other hand, the Nasdaq new lows indicate a problem in this market, with over 200 new lows seen on Tuesday and Wednesday. You don't get that many new lows unless there is a problem.

So, with the NYSE showing strength and the Nasdaq displaying weakness, I think this means that we should continue to try to profit from the short-term cycle but we should also trim longer-term holdings and take profits more aggressively than usual.

Bottom Line

I'm a stock market bear, but I acknowledge that there are enough signs of life in the market that I can't be too negative just yet. Most of my accounts are in cash because the stocks I was holding were topping out.

My largest holding is 20-year Treasuries. My thinking is that when the stock market eventually starts to roll over, longer-term bonds will perform well. I have a few small inverse ETF positions as well, just because I couldn't resist. However, I think it is still too early to be shorting the market.

Moving on, this was one of my favorite areas of the market. Unfortunately, the stocks in this group did not do well this past week, and I was stopped out.

I just can't ignore this chart. It really looks like a shorting opportunity to me, with prices just below heavy overhead resistance. However, there aren't signs of weakness in the most recent price action. Therefore, I'm waiting.

This chart goes back to 1980. The yield curve is dramatically inverted. I think saying that this is a red flag would be an understatement. It indicates a potential problem brewing, but if there is a problem, it is a difficult one to time.

Yields looked poised to move lower, but they just don't seem quite ready to make a big move yet.

Yields are shown in the chart above, and prices are shown in the chart below. The TLT closed the week at a level it keeps testing.

I've been an oil price bear for a long time based on the downtrend in this chart. A couple weeks ago, we got a big move lower that initially confirmed the downtrend, but then the price gapped up on news of production cuts.

Now what? I'm still a bear because the gap up took the price up to the top of the range where it stopped. My guess is that prices will not be able to move much above this level, but I will respect the change in trend if it does.

I'm short oil stocks via an inverse ETF, but the position is small because the longer-term hasn't broken down.

Outlook Summary

  • The short-term trend is up for stock prices as of March 29.
  • The economy is at risk of recession as of March 2022.
  • The medium-term trend is uncertain for Treasury bond prices as of Feb. 4.

More By This Author:

Finally A New Short-Term Uptrend
The Start Of A New Short-Term Uptrend?
Too Much And Too Soon For A New Short-Term Uptrend

Disclaimer: I am not a registered investment adviser. My comments reflect my view of the market, and what I am doing with my accounts. The analysis is not a recommendation to buy, sell, ...

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