Image Source: Unsplash

The short-term uptrend continues. On Wednesday, it looked like the market was getting started on its next short-term down cycle, but on Friday it showed that it wasn't ready to sell off just yet.

I'm a bear and I had a bad day on Friday. I'm not happy about it, but these things happen, and I will survive the bad days as long as I stick to the trading plan. What's the plan? Raise cash by selling stocks when the PMO is near the top of the range, and deploy cash by buying stocks when the PMO is near the bottom of the range.

Friday was a very strong day with a strong close above the 5-day average, but this was within a sideways price pattern. Looking at this chart, I would guess that prices will test the June highs, which means there is a bit more room for prices to rise. So, we must wait and watch to see how these indexes behave at the resistance levels.

The price patterns of the bullish percents aren't helping us much because they show similar sideways movement.

The bad news for the bears like me is that the level of the bullish percents is still very low in its range, so there isn't a lot of room to move lower. But there is bad news for bulls as well because it also means that the majority of stocks remain on sell signals, and the stock indexes can't move higher with most stocks on sells.

I got a bit too bearish on Wednesday when there was quite a bit of selling in the morning, and almost all of the bullish percent indicators turned lower. Most still remain pointing lower despite the strength on Friday.

Junk bonds sold off sharply in early June, but they bottomed nicely for the rest of the month. Now with Friday's strength, junk bond prices look like they want to move back towards the downtrend line. In the short-term, this is a fairly good looking setup for stocks. I should note though that until Friday, these prices showed the same sideways pattern that stock prices showed.

There are way too many 52-week new lows, and healthy markets don't have a lot of new lows.

There were a ton of new lows on Thursday, but on Friday the number of new lows settled down, which is what we want to see when the market rallies. But the level was still too high, particularly with 166 new lows on the Nasdaq. That number should be closer to 50 if we are going to see the indexes run higher. However, let's stay open-minded and continue to watch this chart because new lows can drop to harmless levels suddenly.

This might be today's best look at the general market. The chart shows that the index remains under a larger downtrend, but it moved too far below early-June and it has needed some time to work its way back towards the downtrend line.

Now, with prices approaching the downtrend and the momentum indicator nearer the middle of its range, I'm thinking we will probably start to see prices weaken, but I'm going to continue to remind myself to stay open-minded.

Here is the same chart style as above, but this one is showing Europe stock prices denominated in US dollars. There isn't much here that looks hopeful for this ETF other than that it is oversold. I'm a seller on rallies.

Bottom Line: I'm 26% long stocks mostly healthcare, and 35% short via inverse ETFs. I got hit hard on Friday's strength, and I will adjust based on the market action next week.

I continue to be amazed at the number of stock pickers on CNBC giving their opinions on whether we'll see a recession in the US. Let the people who have spent careers studying recession warning signs do the predicting. 

“It’s very clear we do not have falling employment... It's not unusual if you look at past history over decades to see the employment market pretty tight in the run-up to a recession,” Lakshman Achuthan, founder of BusinessCycle.com, stated on July 8.

Outlook Summary

• The short-term trend is up for stock prices as of June 24.
• The economy is at risk of recession as of March 2022.
• The medium-term trend is uncertain for treasury bond prices as of July 2.

More By This Author: