EC Short Term Trend Is Trapped

The short-term uptrend is trapped inside a larger medium-term downtrend. As a result, the short-term uptrend can only reach up so far before it is met with selling. I think this is what happened to the market on Friday.

So, we are already on watch for signs of the next short-term downtrend.

Here is a look at the Short-Term PMO Index. The speed with which it went from zero to ninety seems consistent with a temporary, oversold short-covering rally. But the election was in there too, and that throws the cycle pattern off a bit. Not that it matters though. It doesn't seem worth it to over-analyze the market in the short-term.

This chart shows way too many new 52-week lows on Friday for an uptrend.

The Sessions firing has put the Mueller investigation back in the headlines, and I am sure that isn't helping the market much. Combine the investigation with a Democratic House and a weaker economy, and you have the potential for a very poor environment for stocks.

But wait. We are entering the strong seasonal period for stocks. The sentiment figures are ripe for a contrarian rally, the midterms are behind us, and stocks have already corrected quite a bit.

It is all way too much to try to parse out, so I am just following my primary indicators... the 52-week new highs and lows, and the ECRI Index which we'll look at next.

The Long-Term Outlook

Hello! Earth to Doug (that's me). Your two favorite indicators are flashing red. Time to take protective action.

I haven't made any moves yet in my accounts. I am paralyzed because I really like the stocks I own. But these charts are saying that I either have to sell some holdings or hedge, and I have never been good at hedging.

The bottom looks to be dropping out from under the ECRI index, and the Institute has stepped up its warnings about the economic dangers that keep deteriorating.

This is a bad looking chart.

The price of oil broke trend, and then it broke support. In my opinion, the price of oil is what really pushes the Federal Reserve to raise short-term rates despite all other talk. This chart allows them plenty of cover to hold rates where they are.

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

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Thorgood 1 year ago Member's comment

why would they raise rates if oil stays low? they would leave them alone in that scenario. But Powell would not act solely on the price of oil anyway. His data points are far too sophisticated to rely on one very volatile commodity that moves at the mercy of politics and economics.

Moon Kil Woong 1 year ago Contributor's comment

You are correct. The Federal Reserve is raising rates in fear of inflation. I think the author was saying the Federal Reserve was afraid of a spike in oil prices which is no longer on the table. What the Federal Reserve is really worried about is higher prices (inflation) from more Chinese tariffs and a recession where it needs enough powder, higher rates, so they can have a positive effect when they drop them.

Thorgood 1 year ago Member's comment their genius moments they are going to raise rates to cause a pre -recession scenario just so that they can lower them to mitigate what they might have caused only so that they can look like heros. Brilliant!