The Downtrend Continues Unexpectedly

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The market's short-term downtrend has continued despite my expectation last week that the market was ready to rally in the short-term. 

Early in the week, it did look like stocks would start to rally, but the jolts and jobs reports were better than expected, and, as a result, Treasury yields rose, undermining the tentative market strength. The SPX broke below its minor support level, and new 52-week lows ticked up again.

The PMO index ticked up off its extreme lows, but there was no follow-through and, therefore, no signal that a new up cycle was beginning.

The Bullish Percents reversed and have pointed decisively lower once again.

Here is a longer-term view of the bullish percents which shows that they are in oversold territory in the short-term, but if the market enters into a serious correction, these bullish percents would have much further to fall.

This junk bond ETF remains healthy while it continues to cycle sideways. This is good news for stocks.

The Summations don't seem to be telling me much, other than confirming the downtrend.

The advance/decline line is just barely holding the support level. As mentioned last week, this break of the uptrend line that started in November 2023 indicates that stocks are experiencing a more severe correction than they experienced through all of 2024.

The new 52-week lows are at elevated levels, as you would expect at the lows of a short-term downtrend. Early in the week, the new lows dropped way down which provided hope that this correction was over, but Friday's session put an end to that.

I remain optimistic about stocks in the short-term despite the recent, disappointing market action. I was listening to CNBC on Friday, and Josh Brown stated that he believes that market selling related to better-than-expected economic news is a buying opportunity. I agree with that point of view, and I am holding stocks, but only for now. I will not be one of those stubborn people who fight the market, because I know the market will always win.


Bottom Line

I raised cash early in the week by selling laggards in order to have cash to buy stocks showing strength once the next short-term uptrend begins. On Friday, I noticed a number of stocks that I monitor rallying nicely despite the general market weakness. So I deployed some of the available into these stocks while continuing to cut and trim particularly weak stocks.

This longer-term market indicator continues to be on a sell signal. For now, this means to me that I need to be more cautious toward stocks. However, if this indicator doesn't reverse higher soon, I will need to move my accounts to the sidelines and wait it out.

These two all-important market leaders are still in uptrends, although the semiconductors continue to look quite tenuous.

The Nasdaq 100 ETF remains in a strong uptrend. I do not see enough weakness in this chart to tell me to be a seller.

Treasury yields were higher this week, as mentioned earlier, and they were particularly high on Friday. This is not good for stocks.

The upper range of the longer-term Treasury yields is being challenged. This is certainly a chart to keep an eye on.

Oil prices perked up over the last two weeks, and now this commodity ETF has broken above its downtrend line. It isn't too bad yet, but the trend seems to be working against holding stocks.

The recent market leader has been software stocks, but their performance has been undermined by the price moving too far and too fast, and now they need to pull back to more realistic levels closer to the uptrend line.

As I've mentioned a few times in the past, strong market rallies often emerge when the following indicator is well into the fear zone.


Outlook Summary

  • The short-term trend is down for stock prices as of Dec. 6
  • The ECRI Weekly Leading Index points to economic recovery as of July 2023
  • The medium-term trend is neutral for Treasury bond prices 

More By This Author:

A Downtrend Despite Friday's Surprising Strength
Stock Market Timing
A Rather Scary Sell-Off

Disclaimer: I am not a registered investment advisor. I am a private investor and blogger. The comments below reflect my view of the market and indicate what I am doing with my own accounts. The ...

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