Last Week's Short-Term Uptrend Continues With Surprising Strength

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The short-term uptrend that started Jan. 6 appears set to continue. This is a powerful uptrend that has caught people off guard with its strength. However, the PMO index is now at the top of the range, which means that the best time for purchases has passed and more selectivity is required for purchases.

Friday's session opened weakly, and it appeared as though we all thought we were going to have a session that closed lower. But stocks reversed and closed with strength, and a Friday close at the highs is a bullish market signal.

The bullish percents are pointing decisively higher, and they are currently at levels that could allow them to keep rising. I've been relying on the NYSE bullish percent more and more because it provides another good method of reading how the market is behaving behind the scenes.

Junk bonds often help to assess investors' appetite for risk, and a willingness to take on risk is a signal that favors higher stock prices. 

This ETF sold off in late December, and it looked like it was telling us that stocks were headed lower for a day or two. However, it then just abruptly reversed and started up again, and it made a nice move above resistance. Investors are buying low-quality, risky corporate bonds, and this is a signal that favors higher stock prices.

The SPX equal-weight is looking good. It established a much higher low in December, and it looks like it is getting ready to burst above its downward-sloping trend line. This is a bullish indicator.

This is the chart that provides the most reliable bullish indication for owning stocks, but you must watch it every day as it can change rather quickly. 

The number of new 52-week lows has settled way down to harmless levels on both exchanges. I learned a long time ago from Mike Burk that bad things don't usually happen in the stock market with the number of new lows at these low levels. This doesn't mean that there won't be painful days, but a significant downtrend won't occur without new lows. This is another bullish indicator.

Here is a look at the new lows and the SPX in 2009. When the market was finally ready to rally, the number of new lows dropped down dramatically and never came back up for the rest of the year.

It is too early to know if the new lows are going to give us a bull market signal for stocks similar to what was seen in 2009, but my plan is to be invested in the market as long as 52-week lows remain at harmless levels.

This chart has people a bit worried about jumping into the market because traders and investors like to buy stocks when the VIX is at higher levels and stock prices have been pushed down and present less risk. But the market is telling us something important here because a strong short-term rally has started without the usual spike in volatility beforehand. I think this is another bullish signal for stocks.

Last week, I said that the line in the sand was the SPX 3920-level and if the SPX rises above the 3920-level, then I'd be willing to accept a higher percentage of stock ownership. As was also mentioned last week, this chart gives the SPX the look of a potential bullish inverted-head-and-shoulders price pattern, which will be confirmed if the price breaks above the downtrend line.

Here is another chart that favors stocks. The weekly cumulative advance/decline line formed a higher low and is now working on a higher high, which is a classic bear-to-bull reversal price pattern.

This is a look at the global advance/decline. It displays an impressive break out above the 30-week line, meaning that global markets participated in this week's rally, not just the US market.

Inflation assets are doing well, including the gold miners. These assets are responding favorably to the notion that the Fed is close to being done fighting inflation. I like this area of the market at the moment.

I am including this chart just to make sure that I don't get too carried away with bullishness.

Bottom Line

My accounts were up to about 90% long stocks by Friday morning, so I had a good week and I was feeling over-extended and ready to capture gains.

Also, the market has moved quickly and there is a good chance it will give back some of these gains, so, going into the long weekend, I reduced holdings to about 50% long. I will reassess next Tuesday (the market is closed on Monday). Home builders, construction, and inflation-sensitive materials have been the leaders.

Here is a list of market holidays:

  • New Year’s Day: Monday, Jan. 2 (observed).
  • Martin Luther King Jr. Day: Monday, Jan. 16.
  • Washington’s Birthday: Monday, Feb. 20.
  • Good Friday: Friday, April 7.
  • Memorial Day: Monday, May 29.
  • Juneteenth National Independence Day: Monday, June 19.
  • Independence Day: Tuesday, July 4.
  • Labor Day: Monday, Sept. 4.
  • Thanksgiving: Thursday, Nov. 23.
  • Christmas: Monday, Dec. 25.

Additionally, this dividend stock ETF is ready to make a new high. If you are looking for a relatively safe and steady place to be in the market, this might be it.

When inflation-sensitive stocks are doing well in the US, then you can usually be sure that the emerging market stocks are also doing well.

I like the look of clean energy stocks. This is a constructive chart pattern.

Outlook Summary

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

More By This Author:

A New Short-Term Uptrend May Have Started On Friday
Keep Watch For The Next Short-Term Uptrend
The Recent Short-Term Downtrend Continues

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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