Image source: Pixabay

The short-term uptrend has continued, as shown in the chart below. The PMO index has risen nicely off its lows, showing that most stocks have transitioned to momentum buys over the last 7 or 8 trading sessions.

Also, the momentum indicator in the lower panel shows that the NYSE advance/decline line confirms the market's move off its lows. It's been a decent short-term buy signal for the market, and it has provided a few weeks of nice profits.

The bullish percents of the two major exchanges are also confirming the short-term uptrend, as they show an increasing number of stocks on buy signals. I like how the bullish percents started moving upwards well in advance of the May 2 short-term buy signal.

The SPX is now challenging its March highs. Although this chart pattern is bullish, I wouldn't be at all surprised to see the ETF price stall at this level and move sideways before breaking into new highs.

I should note that volume has been weak during this advance, but I wouldn't make too much of it yet. That's because the price pattern looks like base-building, with the price forming the right side of a cup. If the ETF breaks to new highs, that is when we should see real upside volume.

The short-term uptrend is looking good in general, although the QQQ equal-weight ETF is still below its 50-day, and that is a bit of a concern.

At Investors.com, the Senior Market Analyst is Mike Webster, who recently returned to the site. He worked with the founder, William O'Neal, for many years, which means he has a lot of terrific stock market insights. Although his right-wing personal politics drive me insane, there is a lot to learn from him.

One thing that he likes to say is, "Good things generally occur in the stock market as long as the SPX trades above its 21-day exponential moving average." In addition, he likes to see the lows of the daily range above the moving average as well as the daily close. Based on the chart below, I have to say that this very simple observation is one of the best market insights I've heard in a long time.

Looking back to early April, there was a gap down on April 2, and that was followed by a strong close under the 21-day on April 4. That was an undeniable signal to reduce stock holdings in trading accounts. It was a really great signal because the SPX then pulled back by 5%-6%, which isn't a lot, but the leading stocks pulled back by a lot more than 6%, and respecting the sell signal would have protected those profits.

The recent short-term buy signal, based on this chart, came on May 3 when the SPX gapped up and broke above the 21-day in a convincing fashion.

The short-term uptrend looks healthy, although with a few non-confirmations, such as the weak QQQE ETF under its 50-day.

For me, I've been distracted lately during market hours and unable to follow the market as closely as I would like, so I moved my trading accounts mostly to cash. In the evenings, I have been reading the memoir of Nicolas Darvos with fascination, and I highly recommend it. It is very short but so worth reading.

Treasury yields have behaved quite well lately, pulling back from the highs. The pullback is contributing heavily to the strength in stocks, so this chart is worth watching every day.

Yields haven't broken down, however, and it isn't clear what will happen to stocks if these do break down below the support lines. Will the weaker yields simply be a green light to buy stocks, or will weaker yields indicate a serious problem in the economy and therefore be a signal to avoid stocks? 

The larger stock market trend is back on a strong buy signal, based on this chart, after a brief false-alarm sell signal. However, a much more convincing buy signal is one that occurs near the lows of the indicator's range, such as the buy that occurred last November. 

There is some talk about a bull market non-confirmation occurring based on Dow Theory. Dow followers like to see the Industrials and Transports confirming one another, and this chart shows a strong uptrend for the Industrials and a weaker sideways pattern for the Transports. I'm a Dow Theory believer, and I don't like the looks of this. It is a caution signal for the larger trend of the market.

Here is another market caution signal. Consumer staples and utilities have been recent strong performers, which can often be a signal that investors are getting worried and preparing for a pullback among growth stocks, traditionally leading to a bull market.

Ordinarily, I wouldn't make too much of this because there have been plenty of rallies in these two sectors that didn't lead to a market breakdown, but I think it is worth paying attention to this time.

I'm including this chart as a reminder that the yield curve is inverted, and, as we all know, the inversion usually leads stocks lower longer-term. Combine this with the caution signals shown in the two charts above, and I'm concerned.

Even though I'm concerned about the market, I'll let it tell me where it is going rather than predict. Being cautious is different than predicting. With the two market-leading ETFs in uptrends, as shown below, the trend is higher for now.

These two ETFs are rising nicely, as well.

I took profits in my emerging market ETF. Now, I'm wondering why.

Home building and construction also continue to lead.

Outlook Summary

• The short-term trend is up for stock prices as of May 2.
• 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).

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