Image Source: Pixabay

The general market's short-term uptrend appears set to continue, and the SPX chart shown below looks quite good. 

The SPX closed bullishly at its high and above the moving average on Aug. 13, and since then, the price action has generally been favorable. The SPX struggled near the all-time high set in July and traded sideways to form a potential cup-and-handle price pattern. The SPX price now looks poised for a bullish break out to new highs, particularly with the strong close on Friday.

In the lower panel of the chart, I have included the number of the NYSE's new 52-week lows, and this shows that new lows have been at harmless levels since just about the Aug. 13 session, providing a green light for owning stocks.

Ordinarily, this would be considered quite a good setup for traders, but the month of September is often very difficult for stocks, and there is also the potential for unusual volatility due to the uncertainty of the Presidential election.

Below is the chart of the PMO index, and it shows the index at the top of its range.

When this indicator is at this level, it is time to be thinking about taking short-term profits rather than aggressively buying stocks. So, with the PMO signaling caution, along with the start of a difficult seasonal period for stocks, I'm feeling quite nervous about stock prices despite the great-looking SPX chart.

The bullish percents of the two major exchanges continue to point upwards, which favors price gains for stocks, but this chart shows that there are fewer stocks in bull patterns than there were in late July, while the price of the SPX is almost at the same level. It means that this advance of the market is narrower and has less participation than in July.

Here is a nice-looking chart showing two of my favorite indicators. They are both pointing decisively higher at the moment, but they are also at high levels relative to the previous three peaks, which is where I think we could start to see them struggle.

Bottom Line

At the moment, I am invested in a number of the best-performing stocks in terms of earnings. I anticipate a lot of volatility in the next few months, which means it will be a difficult period for traders. So I am not planning to do much trading until late October, and next week I will probably trim holdings a bit and hedge positions with inverse ETFs.

Outlook Summary

• The short-term trend is up for stock prices.
• The ECRI Weekly Leading Index points to economic recovery as of July 2023.
• The medium-term trend is up for Treasury bond prices as of Feb. 1 (yields down, prices up).

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