The short-term downtrend continues, but I am watching for signs of the next short-term uptrend. The ingredients are in place for the market trend to change, but with the election around the corner, we may not see the usual short-term cycles. I suspect that over the next five weeks, we may see a choppy inconsistent looking PMO similar to the pattern displayed in July-August.

The very first step in a new uptrend is a solid close above the 5-day which is what we got on Friday.

Investor Business Daily looks for a key reversal day such as Monday, and then they look for a follow-through day on high volume. Friday looks like a follow-through but it lacked the volume that they need to see. I'll take their word for it.

Last week I was looking for a shakeout dip under the 50-day, and it occurred on Monday. Now we need to see a fairly rapid bounce back above the 50-day. Based on the market strength on Friday, I think we'll get it.

For a new uptrend to occur, we also need to see a turn higher by the 10-day call-put ratio, and we got that on Tuesday.

One last point. I'm hearing more and more people say that they don't look at the major indexes or any indicators to determine the market trend. They gauge the trend by the health of the leading stocks. That's a new market timing trick for me. I would certainly agree that the leaders fell off a cliff early September, but now I am seeing quite a very good looking bases forming for the next leg higher.

The Long-Term Outlook

M2 growth has perked up again. This favors higher stock prices and it should be particularly helpful for the gold miner stocks.

The ECRI index continues to tick higher and that is good for the economy and stocks.

I listened to a few CNBC podcasts this week and I heard lots of very negative opinions about the market... and that's a favorable contrary indicator for stocks.

The II Newsletter Writer Sentiment Survey is still showing bulls above 50%. If it dips under 50% next week, then I would say sentiment has shifted in favor of higher stock prices from a contrarian point-of-view.

The US Dollar and US Treasuries were strong last week and that strength helped push the gold and copper mining stocks lower. When stocks start to climb higher again, I would normally expect the dollar and treasuries to start to ease back. But this election is really unusual and a bit frightening, so I think that most people will want to hold their dollars and treasuries will into the Spring.

Outlook Summary

The medium-term trend is near the top as of Sep-12

The short-term trend is down as of Sep-03 <-- watching for a change in trend

The economy is in early expansion as of Sep-19

Contrarian Sentiment favors lower stock prices as of Aug-30 <-- watching for a change in trend

The medium-term trend for Treasury bonds is up as of Jan-25 (prices higher, yields lower) 

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

Trader Discipline

• Don't be afraid of corrections because they are opportunities
• Never invest based on personal politics
• Take pride in sticking to the trading plan
• Don't give in to fear, greed, or anger