Too Much And Too Soon For A New Short-Term Uptrend

Chart, Trading, Courses, Forex, Analysis

Image Source: Pixabay

Last Saturday, it looked like the market was getting ready for its next push higher, but now it seems like I was expecting too much and too soon, as the market showed that it needed more time to flush out the excess optimism before moving higher. So, last weekend's post was quite the miss on my part.

Now what? First, we wait a few days to see what the short-term fallout is from the SIVB closure and if there is a run on small banks. Second, we continue to watch for the subtle signs that the market selling becomes exhausted in the short-term, and that the next short-term rally is beginning.

At the end of the day on Wednesday, it looked like the market was in decent shape and the rally might begin. But by mid-day Thursday, the SPX undercut the Wednesday low, and it was apparent that there was a problem brewing. 

I used to follow the market closely during the day using Twitter, but I lost interest in the platform, what with all of its turmoil, so I didn't know what was going on with SIVB until well after the close when I heard about it in a podcast. So, I think I need to get back to using Twitter for breaking market news.

The bullish percents shown in the chart below are certainly indicating a sudden problem in the market starting on Thursday, and both of these indexes now look like they will need at least a week or two before they are ready to bottom out.

The NYSE common stock-only summation index looks like it has further the fall. It is another indicator suggesting that more time is needed for the market to bottom out short-term.

This chart shows that the SPX was in decent shape until Thursday, but by the close of the day on Friday, minor support was broken. Now, the index faces a slightly larger test at about 3800. A breakdown here would break the trend of a short-term higher low and a short-term higher high.

I've shown this chart before. Despite the higher low and higher high, the chart actually has more of a sideways look, and with a terribly weak on-balance volume indicator. It is hard to imagine the SPX having transitioned to a longer-term uptrend with such a weak on-balance volume.

There was a nice comment last week from someone asking to see the PMO index every day. Well, I think you would need to subscribe to StockCharts in order to see it that often, but you can see momentum indicators on just about any charting platform, and they work in a very similar fashion to the PMO.

This chart shows the KST, but you probably have access to a number of other choices, such as MACD, that work just as well. The MACD default settings are a bit too sensitive for me, and you might need to adjust the settings to your own liking.

This chart shows the 20-day, outlining the ups and downs of the short-term cycle really well. It also shows the larger trend using the 200-day, which is once again negative for the general market, with prices breaking below.

The KST is telling us that the market has pulled back but still needs time. I know that using a KST or MACD is a beginner's tool, but look how nicely it shows the short-term cycle in this chart. Maybe this chart is telling me not to overthink or to use too many indicators, and that when the KST curls upward, that's when we will have the new uptrend.

Junk bonds, based on the chart of this ETF, still look healthy, although the on-balance volume indicator did take a dip on Friday. I'm not going to panic about any market news unless this chart starts to break down. But if it does break down, I will step aside from the market and move to cash.

Will this triangle pattern result in a breakout or a breakdown? Last week, it was touching its downtrend line and looked like it was getting ready to break higher. One week later, I'd guess lower. Maybe it would be better to just wait and see what it does.

Bottom Line

Obviously, I don't have any special insights into the market today. I'm a market bear who has been trying to trade long because the market indicators have been favoring higher prices, at least in the short-term.

I am about 50% long stocks with no short positions, and 50% cash. The market news got scary on Friday, but it is way too late in the short-term cycle to be buying protection using bear ETFs, so I will rule that out. However, it isn't too late to sell stock holdings in order to protect capital, and I will do that if necessary. 

When the SIVB news settles down, there will be another short-term uptrend, and I will continue to try to trade it because that is how I am. But the SIVB news could be the start of similar news, so it is probably smarter to get considerably more cautious, and I'm sure that just about every other market participant is considering the same thing.

I'm thinking that with an event such as SIVB occurring, and so quickly, it is time to limit long exposure to a maximum of about 50% of the accounts. Liz Ann Sonders reminded viewers on CNBC that rising rates were certain to "break" something, and that other things are going to break as well. That sounds about right to me.

Outlook Summary

  • The short-term trend is down for stock prices as of Feb. 9.
  • The economy is at risk of recession as of March 2022.
  • The medium-term trend is uncertain for Treasury bond prices as of Feb. 4.

More By This Author:

Approaching A New Short-Term Uptrend
Is It Too Late To Profit From The Short-Term Downtrend?
A Short-Term Downtrend Or A Market Rest?

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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