Image Source: Pixabay

Friday was a big day in the market, as shown in the chart below. The NYSE had formed a tight consolidation that resulted in a forceful breakout to new highs. This looks quite bullish to me.

The PMO Index showed a convincing short-term momentum downtrend for most stocks, which started on Oct. 3 (note that a downtrend includes a sideways consolidation). However, based on the chart above, there is no way you could say that the market is currently in a short-term downtrend -- but the market often does its best to confuse us, so let's wait to see how the market behaves on Monday before we declare that the short-term downtrend is over.

I don't like it when a new short-term uptrend begins when the PMO index is near the middle of its range as it is now. When this happens, it usually means that either there really wasn't a short-term downtrend in the first place, or that the downtrend will resume after a few very confusing days in which the market is rallying.

Here is a look at the bullish percents for the two major exchanges. These indexes barely moved lower since the short-term downtrend began on Oct. 3, and they didn't move up enough on Friday to confirm a new short-term uptrend. In other words, these bullish percents are not helping us much (they didn't move lower, which would have presented us with a low-risk opportunity to buy).

Junk bonds corrected just a bit in October, but the price of the JNK ETF looked a bit extended in September, so the October move lower doesn't mean much. This chart continues to be bullish for junk bond prices, which is also bullish for stock prices.

The NYSE 52-week new lows continue to be at harmless levels, and with new lows looking so favorable, there really isn't much chance of a significant correction in stock prices. This is a bullish indicator.

Bottom Line

The market experienced a very enticing rally on Friday, but the market isn't presenting us with a low-risk opportunity to buy, and I don't think anyone would be at all surprised to see stock prices turn lower again next week. In addition, we are in a difficult time of the year to trade stocks because of the Presidential election. What to do?

When the short-term trend is unclear to me, I turn to the broader market indicators such as junk bond prices and the number of new 52-week lows, and these two data sets point to a healthy stock market and higher stock prices even if there are some frustrating pullbacks for the market along the way. As a result, I am currently about 90% invested in stocks with the attitude that I will just need to ride out the uncertainty of the market for the next three or four weeks.

Next, this is my longer-term stock market indicator, and it continues to point higher, favoring higher stock prices in the future.

Commodity prices were looking weak last month, but they firmed up after just a quick dip below the long-term support level. Stable commodity prices, as shown in this chart, are an important ingredient for a healthy stock market. This is bullish for stock prices.

The IGV ETF experienced a beautiful bullish breakout last week, and it has the look of a rally that is only just beginning. You have to like the looks of this. This is another bullish indicator.

Additionally, there have been more bullish breakouts for important ETFs.

The following ETFs aren't looking bad, either. These aren't eye-popping breakouts, but they are certainly beautiful longer-term uptrends.

The next ETF is another thing of beauty, but it might be a bit late to be buying at current prices. This is another bullish indicator.

Finally, these are the market leaders. They haven't yet broken to new highs, but they sure look like they want to do so soon. When these go up, the whole market goes up. This looks bullish.

Outlook Summary

• The short-term trend is uncertain for stock prices.
• The ECRI Weekly Leading Index points to economic recovery as of July 2023
• The medium-term trend is up for Treasury bond prices as of Feb. 1 (yields down, prices up).

More By This Author: