A New Short-Term Downtrend Began

The Short-Term Trend

I believe a new short-term downtrend began on Friday, March 19. The PMO stalled out this past week below the top of its range, and it has now turned lower. There was a similar period of weakness in January which whipsawed the PMO, so I'm keeping in mind that a whipsaw could happen again.

Higher yields have been pushing investors to sell technology and to buy financials and cyclicals, but it is starting to look like the financials and cyclicals are extended and may need some time to consolidate gains. So if yields continue to rise, it may be prove that there aren't many areas of the market available to buy.

For the first time since February 2020, my trading account is all cash and my longer-term accounts are 50% cash. I want the cash because I am not sure how to invest the money, but also because I know that my best gains almost always occur when I have cash available to invest after the market has pulled back.

If I am wrong, and the market finds its footing to move higher, I'll quickly admit to my mistake and jump back in. I think this strategy allows me to respect the market and its risks.

One of the requirements for a new downtrend is to see the SPX below its five-day average. In this case, all the major indexes are now trading below their five-day averages.

The bullish percents are rolling over.

The Summation Index is also rolling over.

The PMO of the broad market has turned lower, but it isn't a convincing short-term sell signal yet. Also, it shows a clear pattern of weakening longer-term momentum. The good news is that after one or two more thrusts lower, the momentum indicator will be nearer to a more powerful lift-off level similar to November 2020.

I think this the most important chart of the day. While the PMO is near the top of its range, the number of NASDAQ new 52-week lows has been increasing and is now at a level that indicates the potential for another significant pull back. The last thing you want to see is the market near a short-term peak while there are also quite a few new 52-week lows.

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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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