Image Source: Pixabay

This has been an incredible short-term rally. The people on CNBC called this rally perfectly. They said the market would rally starting in November and continue through the end of the year. I'm impressed.

On Wednesday it looked like the market was finally getting ready to pull back, but then rallied again. Now, the price pattern is looking a little wobbly but nothing yet to indicate that there is a lot to worry about.

The bullish percents of the major exchanges continue to look good.

The summation indexes also continue to look good. There certainly isn't anything in this chart showing weakness.

This is a chart of the summation indicator of the top panel shown above. I'm looking for a red candle as an initial sell signal. So far, only white candles although with the indicator at this level, the odds are getting good that a red will appear soon.

No change in this chart from last week. The NYSE new 52-week lows continue to behave very well at harmless levels, but the NASDAQ new lows are elevated indicating that there is still some concern about this market. The yield curve has been inverted for many months and I think the weakest NASDAQ stocks that are impacted by high yields continue to feel the pain.

The small cap index has broken above the upper range that has been in place for a couple years. This is very bullish for the market and is in contrast to the comments that I just made about the weakest NASDAQ stocks. I would hope that as this ETF rallies that the NASDAQ new lows would settle down to lower levels.

Bottom line: I obviously don't have much to add to the commentary about this stock market's short-term trend. I was down to about 50% cash early in the week so I was feeling good about my timing during the sell-off on Wednesday, but then with the rally that followed I wasn't feeling as smart. 

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There are quite a few industry ETFs that are looking good in the charts. The broker-dealers have been rallying nicely after being hurt by huge losses in their bond portfolios.

The high-beta blue chip stocks have rallied very nicely and are just now hitting new highs.

The medium-term outlook for the market continues to look good as shown by this chart. I would expect the indicator in the lower panel to correspond nicely with the short-term cycle, so we should see it turn lower at some point soon. 

But the indicator in the upper panel corresponds with the medium or longer-term cycle, and if the market is really healthy, then we'll see the indicator in the upper panel continue to point higher even if the indicator in the lower panel points downward. If that occurs, it will be a signal to me to continue to hold some stocks even during a short-term downtrend and to be prepared to deploy cash back into stocks at the short-term cycle lows. 

Here is a look at the same chart but during one of the most bullish periods for stocks. The bottom panel shows that the market had its normal short-term cycle of ups and downs, but the top panel said that the market was healthy and headed higher despite the short-term fluctuations.

The ECRI Weekly Leading Index is pointing higher indicating economic growth in the near term, and an economy that shows growth generally favors higher stock prices. I like to continue to hold a percentage of stocks through the short-term down cycles whenever this indicator is above the 2% level and even more so when the indicator is pointing upwards like it is now.

Outlook Summary

The short-term trend is UP for stock prices Nov-02.

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

The medium-term trend is UP for Treasury bond prices as of Nov-2023. (yields down, prices up)

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The Short-Term Uptrend Is Ready To Rally
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