A new short-term uptrend started on Dec-21 and it is looking good so far with a couple of nice white candles on the PMO index which is coming off the low of its range. This is usually a good set-up for trading.

However, if you are unconvinced of this rally, I don't blame you because it is happening after a couple of difficult short-term downtrends, and a confidence-shaking false signal that occurred two weeks ago. In addition, volume is light and only the truly dedicated are paying attention to the stock market.

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The chart below is a close-up of the PMO Index and the market signal that turned the trend upwards. During a bad session on Monday, Dec-20, the market managed to close in the upper half of its range which hinted that the selling might be done. Then, on Tuesday the market followed through with a strong session that closed at its high of the day, and the number of new 52-week lows dropped way down to a harmless level. These were signals that the selling was done and that a new uptrend was starting. 

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In order to have a new uptrend, the major indexes need to close above their 5-day averages, and that occurred on Tuesday. Then on Wednesday, the market followed through with a similar strong session and a strong close.

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Strength in the bullish percents provided confirmation of the uptrend. Both the SPX and NDX indicators turned higher on Tuesday with the NDX closing above the moving average. 

The NDX bullish percent showed strength during the week of Dec-13 which hinted that the short-term bottom was forming. I don't think I acknowledged this bullish setup even though it looks hard to miss now. 

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The bullish percents of the broad indexes also turned higher. These bullish percents showed convincing strength on Thursday even though the major market indexes showed price hesitation to close out the week.

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The cumulative advance/decline lines of the SPX and NDX are looking very good and are confirming the bullish price moves of the indexes. 

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I frequently mention in this blog that I believe it is important to trade stocks in the direction of Junk bond prices, and right now junk bond prices are sending the message to buy stocks. I was surprised to see this strength, but I think last week I missed that the JNK ETF had pulled back to the moving averages and found support to create a mini launching pad for this week's rally.

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A nice-looking chart pattern has developed for the S&P-1500. It is poised to break out above resistance in a bullish ascending triangle, and with a turn higher in the momentum indicator. I like the looks of this. It has the look of a W or double-bottom support.

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Not all the charts are lining up perfectly to support this new rally. Although the number of new 52-week lows for the NYSE is looking very good, the number of NASDAQ new 52-week lows is still worrisome. 

I think the elevated number of new lows on the NASDAQ is telling us that, even though an uptrend has started, there is still selling pressure among the weaker stocks behind the scenes in the broad market. And if there is still selling pressure in the market, then I have to assume it will undermine the market rally to some extent. 

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Below is the same chart but with an 18 month time period. This chart shows that there are always more new lows on the NASDAQ than on the NYSE, but you can start to see a pattern of elevated numbers of NASDAQ new lows beginning in about March of 2021. 

In June of 2021, new lows diminished on both exchanges to harmless levels, but they picked up for the NASDAQ in July and remained elevated for the rest of the year. New lows increased on the NYSE in August but then diminished again with each of the short-term rallies.

This pattern of gradual elevation of new lows hinted at weakness developing in the market, so it wasn't really a surprise when the number of new lows burst higher for both exchanges in mid-November resulting in a short-term cycle downtrend that was deeper and harder to sit through.

Because there are still so many NASDAQ new lows, I am assuming that future short-term cycle downtrends will continue to be severe and will require aggressive profit-taking and defensive levels of cash.

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Bottom Line: The past two weeks have been yet another reminder that when the PMO index is near the bottom of the range, it is time to be looking for the next short-term uptrend. However, because there are too many new lows, I am forced to increase my level of caution. When the PMO nears the top of its range, and if the NASDAQ new lows remain elevated, I will take profits more aggresively and raise more cash than usual.