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The short-term uptrend has continued, although it appears to be on the ropes. The PMO index ticked below the top of its range, and the momentum of the A/D line looks ready to cross under into a sell signal. Both are strong hints that momentum and breadth are near a peak.

With these two critical indicators in this state, I'm inclined to resist making new purchases and to make sure I have an adequate cushion of cash in my accounts to handle the next short-term decline.

The first step in declaring a new short-term downtrend is to see these major indexes trading below their five-day averages. At the moment, only the Dow is showing clear weakness. When all three start to close under their five-day averages, then it will likely be the start of the next short-term downtrend.

The bullish percents of the two major exchanges are both pointing decisively lower further, indicating a possible change in the short-term trend.

This chart shows the NDX and the SPX with the 21-day EMA, the support provided by the late-April highs, and the longer-term upward trendline that started in early November. I'll be watching all three for signs of weakness. What I'm not sure of is whether closes below the 21-day are too late to be raising cash.

In general, I like to start taking partial profits and raising cash into the last bits of market strength towards the end of the short-term uptrend, which means I'd like to have a healthy level of cash before the indexes close under the 21-day EMA.

All three of these summation indexes are now on a sell signal. This looks like a short-term, bearish indicator.

Bottom Line

The short-term trend is still up, but the charts are suggesting it's time to start thinking about getting defensive and ready for the next short-term downtrend.

Regarding the longer-term trend of the market, I wouldn't get too bearish towards stock prices as long as these two leading technology ETFs continue to rise and remain above their uptrend lines. The general market is not going to fall dramatically with these leaders pushing to new highs.

Here is a look at the same two ETFs but with weekly prices. This is a very bullish-looking chart pattern.

This is my favorite chart regarding the longer-term trend. After a brief blip below its signal line, it now points convincingly upwards. But keep an eye on this chart because, at this high level, a turn lower would be troublesome. And with election season fast approaching, I'm preparing to push the sell button and be mostly on the sidelines until the election day gets close.

There was a lot of worry a few weeks ago about rising commodity prices, but they are behaving reasonably well so far, as shown by this chart.

The ECRI index has started to decline, but from a very healthy extended level. When this index declines, it is always worth adding a degree of caution to your market timing strategy. But still, in my experience, as long as this index is at these levels and well above the 0-2 range, the economy and the market are reasonably healthy. Perhaps if we see this index start to decline sharply, then we should get even more cautious.

Outlook Summary

• The short-term trend is up for stock prices as of May 2.
• The ECRI Weekly Leading Index points to economic recovery as of July 2023.
• The medium-term trend is down for Treasury bond prices as of Feb. 1 (yields up, prices down).

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