The short-term uptrend continues. It is still a bit too early to be looking for the next short-term downtrend (or consolidation).

Here is a comment about seasonality and market breadth in this week's column by Mike Burk.

"Next week includes the 5 trading days prior to the 3rd Friday of September during the 3rd year of the Presidential Cycle. The average seasonal pattern remains strong for 1 more week. There should be new all-time highs for the blue chips next week; that will be clearly unconfirmed by 52 week new highs."

The big news of the past week was the sudden and startling outperformance of laggard stocks along with the sharp drop in the price of the leading stocks. When I say startling I really mean startling. The general market was higher on Monday while every single stock in my accounts was down (which implies that I only own leading stocks).

I have never experienced anything like this. A lot of people commented on the "event" but I never really found any of the comments completely satisfying. I am not buying the idea that this week marked the beginning of a shift to value investing and away from growth.

The best explanation that I encountered was that sentiment had become so one-sided in favor of growth names that it led to sudden profit-taking when the Chinese expressed an interest in resolving the trade crisis. This could be true but I think there is more to the story.

Monday's abrupt reversal for growth stocks seems more like part of a bull market topping process to me. Consider that there was also this related news last weekend which is probably why the Chinese are now pushing for a trade resolution.

"China's exports fell unexpectedly in August as the trade war with the United States continued to hit the world's second-largest economy."

The fear that this headline probably created seems more likely to me to be why growth stocks sold off rather than the optimism of a trade resolution that prompted buying of value. These value stocks are probably a hiding place for institutions.

I was still half asleep this morning when I browsed Twitter and found this old quote from Bill O'Neal forwarded by Puru Saxena.

"Bear Market Warnings: If the original bull market leaders begin to falter, and lower-priced, lower-quality, speculative stocks start to lead, then watch out! Laggards can't lead the market higher."

Now, this rings true to me.

How do we respond? For now, we continue to hold because we don't know any of this for sure, and we don't know how much longer the bull market lasts. But we also double-down on our commitment and discipline to implement a selling strategy. More charts later.

Here is a chart for the bulls. This is one group that didn't reverse lower last week and is now pushing to new highs. Very nice.

Another chart for the bulls. These breadth indicators are confirming higher prices.

Here my spreadsheet showing Sector Strength.

Outlook Summary

The long-term outlook is cautious as of May-18. 

The medium-term trend is up as of Sep-04.  
The short-term trend is up as of Sep-04. 

The medium-term trend for the price of bonds is up as of Nov-16 (prices higher, yields lower). 

Investing Themes

Payment Processors, Gold Miners, Solar, Software, Home Building, Defense, Water

Strategy During a Bull Market:

• Buy large-cap stocks and ETFs at the lows of the medium or short-term market trends
• Buy small-cap growth stocks on breaks to new highs in the early stages of market trends
• Reduce buying when the market trend is at the top of the range
• Take partial profits when the market uptrend starts to struggle at the highs
• The cardinal rule is never invest based on personal politics because the stock market can do well regardless of which political party is in control