The Short-Term Trend May Have Room To Run Higher

The Short-Term Trend

The short-term uptrend continues, but the PMO has moved quickly from the bottom of its range to the top of its range. With the PMO at this level, the time for aggressive buying has passed.

If the time has passed for aggressive buying, then how long before we start to take partial profits, trim laggards, and raise a little cash?

The chart below includes the same PMO index as shown above, but with the SPX summation in the main panel. The summation is still rising sharply and coming off a low level, which shows that the short-term trend may still have some room to run higher despite the fact that the PMO is at the top of its range. This chart gives us a rough estimate of how long the uptrend may last so that we know when to prepare for the next downtrend.

The call/put ratio moved higher on Friday, Feb. 12, and is now convincingly pointing higher. This strong move in the call/put is a bit late and out-of-sync with the PMO index. I'd rather see a move like this when the PMO is just moving off the bottom. I'm not really certain, but it seems like an indication of call-buyer capitulation and bullish market froth, although I don't think anyone needs any more evidence of that. This market is definitely frothy.

I started getting a little worried about the market early in the week when Investor's Business Daily (IBD) started voicing concerns about the extended nature of the indexes and the risk of a pullback. Their main concern is how far the NASDAQ is above its moving averages.

They feel that when the index is this extended there is usually a high risk of a pullback. As you can see from the chart below, the risk of the extended NASDAQ still exists, although the advance in the index seems orderly and tight, which is a good sign.

IBD also stated that they were nervous because they were seeing a number of blow-off-top chart patterns among the high-growth, small-cap stocks that they like to trade. I would definitely agree with this, although it seems to me as though for every blow-off top, there is another small-cap that is breaking out and starting to run higher. So, again, I'm not certain about the risks.

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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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