Image Source: Pixabay

The short-term downtrend looks set to continue, although there have been two or three very strong sessions since the downtrend began. So, even though the majority of stocks have declined, the market has held up well and has basically moved sideways since April 25.

Here is a look at the SPX over the course of three weeks. The decision to mark a short-term downtrend on April 25 was because the PMO had started to decline, the momentum indicator showed a negative cross, and because April 25 was a very weak session that closed below the moving average and at the day's lows.

It was a good sell signal, but since that day I have seen three very nice rallies, and, as of this past Friday, the price of the SPX has been above where it closed on April 25. So, are we really in a short-term downtrend?

The two strong rallies on April 27 and April 28 were on strong volume, and with a close on April 28 that challenged the April high. Obviously, that isn't what you want to see when you are expecting a short-term market decline. But the market followed up with declines that were also on strong volume which seemed to cancel out the rally days. And then on Friday, the market had a really big day but with much lower volume.

The chart below helps give me confidence that the majority of stocks remain in a short-term decline. These two bullish percent indicators show very little to suggest that there were strong rallies any day over the past few weeks. For me, it's settled. The market is in a downtrend despite the rallies. And why do I care so much? Because I'm short the market, and I don't want to cover until we get near to the next signal of a short-term uptrend.

This is my most recent go-to indicator and it is still pointing lower. This appears to be bearish over the short-term.

I haven't shown this chart for a number of months because it has been a bit out-of-sync with the market. It is starting to look useful again, and it points toward lower prices at the moment.

The summation indexes turned lower a few weeks ago, and they continue to point lower. These are usually the least sensitive and are typically the last short-term indicators to turn. These indicators are pointing lower, and this gives me the confidence to hold onto the shorts. The small-cap index looks particularly weak.

The 52-week new lows are elevated, to say the least. Friday's session saw a significant retreat in the number of new lows on the NYSE from a very elevated and dangerous level. That works in favor of the bulls, but only slightly because the session before was huge with over 250 new lows. This is very bearish.

On the Nasdaq, the number of new lows has been elevated for some time, pointing to selling and market stress behind the scenes -- even on days when the major indexes are moving higher. This chart is bearish for stock prices, and it seems to indicate significant risk in owning stocks at the moment. 

As stock traders, we must respect risk.

Here is a chart for the bulls. The junk bond ETF is holding nicely, and it is bullish for stocks. If this were a stock, I'd be watching for a breakout higher as an opportunity to buy. My thinking is that nothing too terrible is going to happen to stocks as long as this junk bond ETF holds above this uptrend.

Bottom line: I own a number of small positions in quality stocks, but the majority of my accounts are in cash, bear ETFs, and long Treasuries. I am a bear, but I also acknowledge that not all indicators point to lower prices.

Treasury prices have been moving sideways for quite some time, but the trend has been a series of slightly higher lows even though the highs can't break above this formidable resistance. I'm bullish TLT until the uptrend line is broken, and I will add to positions with a break above resistance.

The real test of stock prices will come when the inversion starts to reverse and flatten. That is when longer-term yields start to move significantly higher and/or short-term yields move lower.

There are a lot of gold bulls out there right now, and I must admit that the charts of gold and gold miners continue to look really good. But here is one chart that may be suggesting some gold weakness ahead.

There is a strong correlation between the Japanese yen and gold miners, and at the moment, they look headed in different directions. It could be that the correlation breaks when there is stress in the markets, and perhaps gold will head higher regardless of what the yen does. I'm not certain, but I'm interested in seeing what happens next.

Outlook Summary

• The short-term trend is down for stock prices as of April 25.
• 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:

Reviewing The Charts For Week Thru April 29
The Not-So-Strong Short-Term Uptrend Continues
The Market Won't Be Rushed Into The Next Short-Term Downtrend