The market has experienced some upsetting volatility over the last two weeks. Friday's sell-off didn't feel good at all, but then again it was a low-volume, holiday season session.

New lows remain elevated. shown here so that I can see when the next uptrend begins. When the buyers step in, these NYSE new 52-week lows will drop down to harmless levels.

The PMO index is at the extreme low of its range which means that it is too late to sell and that it is time to look for buying opportunities. At least, that is what it means to me. You have to decide for yourself.

The bullish parents leveled off. It was a bad market session on Friday but the bullish percents didn't decline and I interpret that as bullish. Or, at least, I interpret it as a sign the stock selling is becoming exhausted.

Summations are a bit wobbly, but they look like they want to bottom out.

The percentage of stocks above their 50-day lines remains at low levels which is generally when the stock market presents a buying opportunity.

The junk bond ETF broke this trendline (depending on how the trendline is drawn), but it is holding above a short-term support level. This chart looks okay as long as the support level holds. So at the moment it favors owning stocks.

The SPX, in the lower panel of this chart, looks good even though it is experiencing a short-term correction. The buy-write index, shown in the upper panel of this chart, looks quite good and even better than the SPX. This comparison also favors owning stocks.

This chart of the new 52-week lows is a bit more difficult to interpret than the previous charts.

There are more NYSE new lows than Nasdaq new lows which I find curious but I don't really know how to interpret it. The NYSE new 52-week lows remain elevated, but that is to be expected when the PMO index is at the bottom of its range.

The decline in the number of Nasdaq 52-week lows has to be a positive for the market, but I just don't know how important it is.

Here is a chart that I haven't shown before. The NYSE common-stock-only advance-decline line (that's a mouthful) shows a bullish series of higher lows that only ended this month. The break in the trend is bearish stocks, but fortunately, the AD line held at the August lows. I don't like this but for now I'll just say that it is something to keep an eye on.

The all-important, market-leading Technology ETF continues to look healthy even though it hasn't been able to close at new highs for several weeks. After such a strong year, it deserves a bit of a vacation and looks okay to me. The Semiconductors ETF, on the other hand, continues to trade under the 200-day and that is a major negative, in my opinion, for the general stock market. It is a bit positive for stocks in that the ETF has basically traded sideways since August.

Following up on the Semiconductors, here is the chart showing the potential bearish head-and-shoulders price pattern. The pattern looks ominous to me, and a break below the neckline would be quite negative. However, the on-balance volume shown in the bottom panel doesn't look bad at all, so I think this indicator suggests that semiconductors might have gotten ahead of themselves and that this pattern is actually a consolidatioin prior to the next move higher.

Here is a great-looking chart. Really great. You can barely see an issue in December. I'm including this here as a reality check. Looking at this chart alone, I don't see much to worry about.

Unlike the chart above, this chart is worrisome. This is my longer-term stock market indicator and it has issued a sell signal. The question is, how much should we pay attention to this? I'm going to pay close attention to this if, after the next short-term rally, this indicator remains on a sell signal. If that is the case, then I will raise more cash than usual and get more defensive than I have during the selloff over the past year.

One last chart. Market sentiment is fearful, and and from a contrarian's point-of-view, that is when I look to be a buyer of stocks (most of the time).

Bottom Line: I am currently about 90% invested in stocks. Last weekend I thought for sure that we would see a new short-term uptrend begin by this weekend, so I bought into the market too early. For now, I am sticking with stocks in order to take advantage of the next short-term market rally. However, when the PMO index once reaches levels near the top of its range, I will re-assess just how much risk I am willing to take on considering some the warning signs starting to appear in the market indicators.

Outlook Summary

The short-term trend is DOWN for stock prices as of Dec-06

The ECRI Weekly Leading Index points to ECONOMIC RECOVERY as of July 2023

The medium-term trend is UP for Treasury bond prices (yields down, prices up)

Strategy 

• Deploy cash by adding to stocks while the market is near its short-term cycle lows.
• Raise cash by partial sales of stocks while the market is near its short-term cycle highs.
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Trader Discipline

• Corrections are opportunities
• Never invest based on personal politics
• Stick to the trading plan and don't give in to fear, greed, or anger
• Don't allow success to lead to overconfidence

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