A new short-term downtrend started on Wednesday, Jan-05. There was some serious selling that day, and in general, it felt like a really bad week. 

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The late December short-term uptrend was interrupted by an abrupt increase in US Treasury yields starting on the very first trading day of the new year, and it resulted in yet another rotation out of growth stocks. 

With the PMO index headed lower, I would usually say that we need to be on the sidelines for a bit while we wait for the market to settle and for the PMO to reach down to the low of its range. But there was such strong buying of the stocks that benefit from higher yields that if we stay on the sidelines we'll be late.

The major indexes closed decisively below the 5-day on Wednesday. There was a hint of a problem in the general market on Tuesday with the Nasdaq closing lower while the Dow closed at a new high and the SPX had an intraday high. When the major indexes are out-of-sync like that, in my opinion, it is a warning that there is a problem (SPY, QQQ, DIA).

The bullish percents of the NYSE and Nasdaq turned lower on Wednesday, but as you can see, the NYSE bullish percent showed strength while the Nasdaq was very weak. This chart does a poor job of confirming the new short-term downtrend for the general market because of the strength in the NYSE.

The bullish percents of the SPX and NDX do a better job of confirming the new short-term downtrend than the chart above, but there is a lot more strength in the SPX than the NDX.

The 10-day Call-Put turned lower this week but it really didn't help prepare us for the sharp decline on Wednesday. I follow this indicator because it often turns lower before the turn in the indexes, so this was a letdown. The only message in this chart is that the early November peak is well above Tuesday's peak which is a negative divergence considering the SPX and Dow reached new highs on Tuesday.

The broader picture of the same indicator shows that the indicator has found support at the same level a number of times over eighteen months. If it breaks down below this support level it will add to the growing list of reasons to be cautious towards stocks.

The small-cap growth index shows a similar sideways price pattern and on Friday it closed right at critical support after trading under the 200-day average for weeks. It is looking bearish and similar to the chart above. If this chart breaks down it's another important caution signal (IWO).

The SPX equal-weight isn't looking so bad. The momentum indicator is pointing lower but the price action is looking okay.

There are tons of new 52-week lows. Simply put, bad things often happen in the stock market when there are a lot of new 52-week lows. This chart indicates that there has been selling pressure behind the scenes for months and that Wednesday's very weak stock performance wasn't a complete surprise. 

5Y and 10Y Yields passed above important levels this week although the 30Y is still below the October high. These rising yields switched the medium-term trend for bond prices to a downtrend.

Wednesday's weakness in stock prices wasn't a surprise, but Monday's surge in yields was certainly a surprise. Maybe it wasn't a surprise to you, but it was to me. Inflation and the removal of monetary stimulus are all anyone has been talking about for weeks, yet the 10Y yield wasn't rising. Then, on Monday, the yields pop up. I guess I got complacent and forgot about the risk.

I haven't heard a good explanation for why yields spiked suddenly on Monday, but I suppose that it doesn't really matter. The CRB looks certain to push into new highs which implies higher yields. 

Bottom line: I started moving some money into financials and materials late last week. I would usually wait until the downtrend bottoms out, but I didn't want to try and play catch up with the new market leaders.