The short-term uptrend continues but it is a confusing, choppy uptrend. On Thursday, the PMO index turned lower and looked ready to roll over, but then on Friday, it turned up again. This indecisiveness is consistent with the general behavior of the market since the early March low, and looking at the chart below, it shows that the PMO has been unable to reach either the highs or lows of its range.

Despite the weakness in the market breadth shown above, the two major averages have continued to climb upwards, and both were strong into the close on Friday; bullish.

Another plus for the market is its lack of volatility shown by the VIX, which continues drifting lower.

Advance/Declines are confirming the short-term uptrend, as they push higher just like the prices of the indexes. The NDX A/D was very weak in early March, and it was weak again in early May, although the May weakness wasn't as bad -- which hinted at improvement for the index.

The number of new 52-week lows has settled down to a level that is not a concern for the market. The risk of a significant market decline is much lower when new lows are behaving so well. Be sure to check this chart every day, though, because the number of new lows can pick up very quickly.

Not all the indicators are working in the market's favor. This chart of the bullish percents shows these indicators close to the top of their ranges, which means the uptrend could be getting old and in need of a refresh. Also, despite the strong close for the SPX, its bullish percent looks like it is rolling over and starting to point lower.

The call/put is one of my favorite indicators because it often changes its trend a few days in advance of the market's change of trend, and, on Thursday and Friday, it started to show weakness after a very consistent advance higher off the low of mid-May. In my opinion, this is a caution signal that it is probably time to prepare for the next short-term downtrend.

Market watchers were a bit stunned this week when inflation was reported to be hot, and the response from the 10-Year yield was to confirm a break of support and a new downtrend. There was tons of discussion about this, but in my view, it is saying that inflation is hot and therefore the Fed must raise short-term rates, which will slow the economy and therefore bring down longer-term rates. 

This chart is important because it indicates that the rate-sensitive and inflation-sensitive sectors may be over-owned and ready to pull back in price, and that high growth stocks which do well with a slower economy may be under-owned.

There was plenty of early evidence of this in the markets on Thursday and Friday, but let's see if it continues to play out next week. My thinking is that for a short while we may see the short-term trend hold its uptrend as the focus shifts from financials and materials back to technology.

What I didn't hear discussed much this past week was the direction of the US dollar, but I think it is important evidence about what is happening in the market. To me, it looks as though the dollar is starting to trend higher, and lower 10-Year yields combined with a higher dollar is a risk-off scenario that works against stock prices -- meaning that the move back to technology is probably defensive. 

The bottom line is: I have a good deal of cash in all my accounts because I worry that the choppy, flip-flopping market combined with lower rates is not constructive for higher stock prices. In other words, I'm being cautious in order to respect the risk of lower stock prices ahead.

Outlook Summary

• The short-term trend is up for stock prices as of May 26.
• Contrarian sentiment is unfavorable for stock prices as of Nov. 14.
• The economy is in expansion as of Sept. 19.
• The medium-term trend for treasury bonds is up as of June 11 (prices higher, rates lower).