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The short-term uptrend continues, and it saw quite an upside acceleration towards the end of the week. There will be no swagger in my comments today, considering I was a bear going into Wednesday's Fed meeting. I was one of those guys suggesting that it was the time to take before the meeting, so obviously I got this one wrong. But now what?

Here is the chart that shows the major indexes and their respective 5-day averages. There was a serious-looking close below the 5-day on Tuesday before the meeting, which was when it appeared to me like the market was ready for that next downtrend, and this was after five weeks of lackluster sideways coiling.

Now the indexes are near their early June peaks, and we can measure the strength of the market by watching to see if they can rally above this level.

The bullish percents are confirming the strength of the rally. The bears might note that the rally only includes participation from less than half of all stocks, but the bulls might say that leaves a lot of room for improvement. At the moment, looking at this chart, I would have to say it appears to favor higher stock prices, at least until these bullish percents close below their respective 5-day averages.

Even if the indexes didn't look all that bullish over the past month, junk bonds certainly have looked bullish since they broke out of the low base formed in June and have now rallied up to their downtrend line.

Some overshoot of this downtrend line is possible, considering how powerful the rally was out of such an oversold and well-formed base. Maybe they will rally up to the May peak? But I'm thinking that we are more likely to start to see junk bonds struggle again, and that means we will probably see stocks struggle, too.

The SPX equal-weight has rallied very nicely, and the most recent three weeks of this chart look similar to the chart of the junk bonds shown above. But now it is close to having rallied up to and just under a fairly strong resistance level.

This chart of the small-caps looks a lot like the chart above. The small-caps have rallied up the downtrend and up the resistance level, which is where they probably will start to have some trouble.

The level of new 52-week lows on the Nasdaq continues to be bearish. This is too many new lows for a healthy market, so I wouldn't declare that the bottom is in for the general market until these Nasdaq new lows settle down to a harmless level. 

On the other hand, the level of new 52-week lows on the NYSE looks bullish. There is no denying it. So I also wouldn't be looking for another sharp market selloff with NYSE new lows below the 50-level.

As Mike Burk has been saying for years, nothing really bad happens to the stock market as long as the number of new 52-week lows remains at harmless levels. And I will add to that, the NYSE new lows are more important than the Nasdaq new lows.

Here is a look at the Europe ETF (denominated in US dollars). It has participated in the stock market rally, and I'm sure I'm not the only one surprised. Growth in Europe was a little better than expected this week, but how much further does the rally for this ETF have to go?

Treasury yields for the 5-year, 10-year, and 30-year are trending lower, which is helping to create the inversion with the 2-year Treasury yield. We have two-quarters of negative GDP and a high level of inflation, with the Federal Reserve raising Fed Fund rates into an already inverted curve. However, everybody who bought stocks this week already knows this.

I have been following Lakshman for years. He has made a career out of predicting recessions, and he is definitely worth paying attention to. His weekly leading indicator is at a very low level. Usually, the -5 level is where I throw in the towel and sell all my stocks, and it looks like it is now below the -10 level.

Here is a quote from a recent article:

"With gross domestic product data showing the key measure of economic output falling again in Q2 2022 after declining in Q1 2022, many will likely conclude that we're in a recession. In fact, over the past 75 years or so, there's been a US recession every time GDP has fallen for two consecutive quarters, according to our own analysis... while it's premature to officially date the onset of recession, we believe one will take hold." - CNN, July 29, 2022

Outlook Summary

• The short-term trend is up for stock prices as of June 24.
• The economy is at risk of recession as of March of 2022.
• The medium-term trend is up for treasury bond prices as of July 22 (yields lower, prices higher).

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