Market Uptrend Starting To Come Together

The PMO index started moving higher seven trading days ago, so I will label the uptrend as beginning on May 26. It hasn't really felt like the beginning of an uptrend, though. The major indexes have been out-of-sync and breakouts were not following through to the upside. However, Friday, June 4 was constructive for many stocks, so perhaps the general market uptrend is starting to come together for all the major indexes in the short-term.

The only problem is that, based on this PMO index, the oversold, lower-risk period for buying stocks was a couple of weeks ago. So if we get a few strong days early next week, the PMO index could easily reach up into the top of range very quickly, which is where the market becomes overbought and is at a higher risk for new purchases.

Investor's Business Daily pointed out that the major indexes tested their 20-day averages on Thursday, but then bounced off these levels and closed very bullishly on Friday. I definitely like the looks of this chart.

The call/put ratio has been trending higher in bullish fashion, and the turn upwards happened a few days before the PMO index turned upwards. That was an early signal that the overall trend was turning higher. 

I received a nice note from someone who suggested adding the RSI indicator to this chart to help spot the turning points in the short-term trend. I like the idea, and I have been experimenting with the RSI as well as the MACD and stochastic on this chart.

I think adding a momentum indicator is helpful because it shows when the call/put ratio is in the oversold/overbought range. I am not showing it here only because I like to keep the charts clean and simple when I post them. Thank you for the suggestion.

After the choppy, whipsaw behavior of the market over the last couple of months, I'm sure no one will be too surprised if the market doesn't cooperate next week. However, that kind of skepticism towards stocks is exactly what is needed to get rid of the excess optimism in the market in order to launch a strong move higher.

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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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