The Short-Term Downtrend Continues Amid Confusing Week

The short-term downtrend continues, with the PMO index pointing lower. Looking at only the PMO index below, it seems like a fairly straightforward downtrend, but this past week certainly wasn't straightforward. In fact, it was very confusing with a strong two-day rally early in the week that turned sharply lower on Thursday, resulting in a dramatic market swing. pointed out that after the two-day rally, all three of the major indexes failed at their 10-day averages.

The bullish percents are mixed. The NYSE is clearly pointing lower and the Nasdaq is showing a bit of strength, which is the opposite of last Saturday. Maybe strength isn't the right word for the Nasdaq. Instead, it looks more like the NYSE stocks are overbought and the Nasdaq oversold, so it appears money is moving out of the NYSE but the selling is less intense in the Nasdaq, at least for now.

The 10-day call-put is pointing lower, confirming the short-term downtrend, although for a day or two it looked like it might turn higher.

The number of new 52-week lows continues to be elevated on both exchanges. With new lows at these levels, you have a very high risk that stocks are going to move significantly lower.

Small-cap growth has broken down, and I'm having a hard time imagining that it is going to regain its uptrend any time soon. With growth stocks pointing lower, can value stocks be strong enough to maintain a healthy general market?

The Nasdaq-100 looks to me like it breaking down and I really don't want to have a lot of money invested in stocks when the uptrend of this ETF is looking precarious.

Here is a look at Treasury yields. Obviously, these yields are trouble for stocks. I doubt that the issue is COVID-19, although I do think that the risks regarding Ukraine may be underappreciated. The charts are telling me that stock prices are under pressure and it isn't a good time to be risking a lot of money.

Bottom Line: I have turned bearish on the market, or maybe better stated, I have decided that the risk of lower prices is too high. So I sold most of my stocks. I am about 15% long stocks, 15% short stocks via bear-3x funds, and the rest cash.

Outlook Summary

  • The short-term trend is down for stock prices as of Jan. 5.
  • The economy is in expansion as of Sept. 19, 2020.
  • The medium-term trend is down for treasury bond prices as of Jan. 3 (prices down, yields up).

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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Harry Goldstein 2 years ago Member's comment

Good article.