Image Source: Pixabay

The market has continued to be choppy and confusing, but with the PMO index at the bottom of its range, we need to be watching for signs of the next short-term uptrend. The momentum indicator in the bottom panel will help signal the next uptrend.

The SPX equal-weight ETF provides some perspective about the pullback in prices experienced over the last few weeks. From the looks of this chart, the decline in prices really hasn't been that bad, and it seems to be a healthy short-term retreat that pulled prices down to support.

Here is the same ETF but with the traditional moving averages. Despite the harmless look in the chart above, the sharp slice below the red 50-day indicates that the market experienced several days of emotional selling, and the index is now under the 50-day and probably needs some time to build a base before moving higher again.

The RSI indicator pulled back to the 30-level where it found support, and this is a bullish signal that the uptrend is intact despite the selling. Next, we will watch for a bullish divergence where prices decline down to or below last week's low but the RSI does not pull back below its low.

If a new short-term uptrend is signaled in the next week or two, I can't imagine that I will redeploy all my available cash back into stocks. I definitely will want to participate, but the market really looks to me like it needs time to consolidate sideways, so I would probably approach any rally attempt cautiously.

Meanwhile, the Chinese stock market has been showing signs of life.  

Home Builders and Construction continue to look good to me. The uptrend was broken short-term, but the larger uptrend is still looking healthy. I continue to really like these assets.

This next chart is a very interesting one. Despite heavy selling for technology shares, the XLK is holding a longer-term uptrend line very nicely. The uptrend line that I drew for the semiconductors is a bit creative on my part, but you have to admit the semiconductor chart doesn't look bad either. I'm a cautious buyer of this group, but I'm buying price pullbacks instead of breakouts.

Outlook Summary

• The short-term trend is down for stock prices.
• 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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