The short-term downtrend intensified on Monday which is a signal for me to start looking for signs of the next short-term uptrend. It is counter-intuitive to think that intense selling leads to buying, but I find that is often how it works. Not always, but often.

And don't forget that we are talking about the short-term trend. Some people might say that the next market move is likely to be just a bounce and not really an uptrend. I won't argue that point because sometimes it doesn't matter. It is difficult to maneuver within the short-term.

I think a strong down day like we had Monday is an opportunity to cover shorts, and then watch for opportunities to take small long positions that are likely to have sharp retracements the next day. Then close those longs and sit patiently for several days waiting for the hints that the buyers are coming back into the market.

So now we are looking for the market hints and signals to buy back into stocks. One very nice hint would be to see a white candle in this PMO chart shown below.

Another nice signal that I would like to see is for the market to reverse lower here at the 50-day, and then retest Monday's lows with a bullish divergence on the RSI. I know this is a really basic strategy, but I point it out because I think it works well when the market shows such distinct uptrends and downtrends as we have seen over the last six months.

A similar pattern that I learned a few years ago from Investors.com is to look for a shakeout low where the market sharply undercuts Monday's lows but quickly reverses higher.

Another thing I look for is to see the number of new 52-week lows dry up. If new lows drop way down below the average after a huge spike, then it is a really good sign that the market is getting ready to move higher.

A reversal of this 10-day call/put ratio would be helpful similar to what we saw in late May.

I think the medium-term trend may have turned lower this week. In general, I find that trying to use the VIX maddening, but the spikes tend to show medium-term weakness.

Here is more evidence that a medium-term market downtrend has probably started. The 5-day average of new highs / new lows has dropped below the zero-level.

The time of year also points to a likely medium-term downtrend with the seasonally weak period starting about now.

I started tracking the medium-term trends a few years ago to help me predict how strong the short-term uptrends would be. The thinking is that if the medium-term trend is down, then the short-term uptrends are counter-trends that will be weaker and shorter. And, the short-term downtrends are more severe.

So this means that if I am right about the medium-term, the next short-term uptrend could be weak and the next short-term downtrend could be strong.

Regarding the longer-term outlook, I continue to believe that a bull market can only last so long and that this one is stretched and extended. However, until the ECRI Index or a few other indicators show the weakness associated with a bear market, this bull will continue to muddle along.

Maybe the trick to this bull market is to try and not get too comfortable by assuming that everything will always work out. We need to stay on our toes.

Outlook Summary

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

The medium-term trend is down as of Aug-05. 
The short-term trend is down as of Jul-19. (Starting to look for the next short-term uptrend)
The medium-term trend for the price of bonds is up as of Nov-16 (prices higher, yields lower). 

Investing Themes:

Treasuries, Cash
Cyber Security, Financial Tech, Water Mgmt, Gold Miners
Healthcare Innovators, Defense Aerospace, Cloud Software

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. The stock market can do well regardless of which political party is in control.