Keep Watch For The Next Short-Term Uptrend

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The short-term downtrend that began that began in early December looks set to continue. The downtrend has now been in place long enough that it is time to watch for the subtle signs of the next short-term uptrend. Dull holiday trading will end soon, so price patterns and volume will become more meaningful.

The first step of a new short-term uptrend is for the three major indexes to close decisively above their 5-day averages, and this chart shows them getting close. I'm also looking for a strong close above Thursday's highs.

The NYSE bullish percent has traded sideways for eight sessions with a neutral look to it, and the Nasdaq bullish percent looks like it could be ready to curl higher. There isn't much to see here, except to note that a bullish signal from these indicators wouldn't be surprising.

The junk bond ETF broke down decisively this past Wednesday, and I think it was because of a very negative report in Bloomberg magazine about stress developing in the credit markets. However, the ETF recovered nicely on Thursday and Friday, keeping the favorable price pattern intact, and, along with the nice looking on-balance volume, the chart continues to have the look of an ETF that has bottomed out. 

Healthy junk bond prices are favorable for stock prices, so this chart favors stocks. But I'll be keeping a close eye on this chart, because if the ETF breaks down, I will be a strong seller of stocks.

Apple looks like it may be rolling over. This company has been one of the most important stock market leaders, so it is important for the health of the general market. A breakdown in this stock would clearly be a market negative. However, this is the last of the leaders holding an uptrend, and perhaps if it breaks down, we could be that much closer to a bottom in the market.

The chart below is a very basic look at the SPX, showing that it is in a downtrend under its declining 200-day, and with a very poor looking on-balance volume indicator. However, if the market rallies soon, there is a good chance that it will break above the 200-day and form a higher low. The NYSE Summation also looks promising because it hasn't fallen very far and could turn blue in only a few bullish sessions.

This is a 20-year chart of the 10-day call-put indicator, which has never been lower in the years shown on the chart. From a contrarian point of view, I would consider the chart to be bullish for stocks.

The ECRI Index has moved up nicely since the October lows, although it is still well below the zero-level which is where I generally get bearish towards stocks. So, I'm still a bear, but I will also acknowledge that this indicator is looking a lot more promising than it was several months ago.

The money supply index has been in decline for most of 2022. When the money supply starts to grow again, it will probably be a sign that the bear market is ready to bottom out.

Bottom Line

I'm about 20% long in the stocks with the best earnings and chart patterns, and I am about 10% short via inverse 3x ETFs. I expect that sometime in the next two weeks we will get the start of the next short-term uptrend, and when that happens I will close all shorts, add to the holdings of the best stocks, and open a few long 3x ETF positions.

There is an interesting correlation between the gold miners and the Japanese yen (I discovered this correlation in a column written by John Murphy). I'm thinking that the gold miners may have more room to run higher based on this chart.

Outlook Summary

  • The short-term trend is down for stock prices as of Dec. 6.
  • The economy is at risk of recession as of March 2022.
  • The medium-term trend is higher for Treasury bond prices as of Nov. 19 (prices higher, yields lower).

More By This Author:

The Recent Short-Term Downtrend Continues
A Short-Term Downtrend Started On Weak Volume
Stock Market Commentary: Headline Charts

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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