Last Saturday I said that a new short-term uptrend started on Thursday, Sept. 23. That didn't quite work out. It was a bad call because by Tuesday, Sept. 28, only a few trading days later, the market rolled over.

The only thing that made me happy this past week is that I stopped out of losing positions. I was able to raise cash, and as a result, I didn't panic. Hats off to the people who sat on the sidelines for most of September because that was the correct call.

I haven't been paying as much attention to the general market volume levels as I should have because volume has been weak for some time. For instance, the strong market rally in late August was on disappointing up-volume.

The clue that volume was still important was that the strong selling starting early September was on greater volume. The most recent leg down that I've annotated below showed a similar pattern of weak buying volume and strong selling volume.

The number of new 52-week lows is something I watch closely, and it helped me quite a bit this past week. The number of new lows on Monday was elevated on the Nasdaq, so I knew the short-term uptrend was troubled. When the new lows started to rise on the NYSE as well as the Nasdaq on Tuesday, that was the signal that significant selling was taking place. 

However, I had trouble reconciling the fact that a number of my own holdings and quite a few stocks on my watchlists were showing strong relative strength and holding up well despite all the general market selling.

As a result, I made the decision to just let the market take me out of my positions instead of selling aggressively, and that worked well, although I tried to wait until at least mid-day before being stopped out - and that wasn't the best decision because the selling accelerated. 

On Thursday evening, I had concluded that the market was breaking down and I was ready to hedge my remaining positions on Friday morning. I bought some bear-3x funds early Friday, and almost as soon as I did, the market started to rally. By mid-day Friday, I was stopped out of my bear-3x funds and I turned off the computer and ignored the market until after the close.

Now what? First, I will breathe in relief that it is October and the seasonally weak August-September period is behind us. Second, I'll remain defensive and wait to see the number of new 52-week lows settle down to harmless levels.

Otherwise, the game plan is the same. I will let the market take me out of weak positions, and I'll hold the strong positions. And if the number of new lows continues to grow, I'll be back in the bear-3x funds to help hedge any losses.

The people who are on the sidelines with a lot of cash are thinking, why didn't people just sell into the late-August strength and play bridge for the month of September? Hats off to those people because they got it right. 

Outlook Summary

• The short-term trend is down for stock prices as of Sept. 7 (bad call on Sept. 23).
• The economy is in expansion as of Sept. 19, 2020.
• The medium-term trend is down for treasury bond prices as of Sept. 23 (prices down, yields up).