Image Source: UnsplashI have received a number of really great comments lately related to my writing, and I really appreciate it.The current short-term uptrend has remained intact, with the PMO index finally reaching the top of the range on Friday. This means that the majority of stocks are once again in sync with the short-term cycle, which may help short-term trading strategies.After several very difficult summer months for the market, excessive bullish sentiment has been flushed out. Combine that with the favorable time of year for stocks, lower oil prices, lower yields, and a couple of favorable inflation reports, and we have a setup that favors higher stock prices.The bullish percents of the major indexes are now pointing upward in a convincing fashion after moving sideways for a week or so, which had me worried about the uptrend. This is a bullish indicator.The major indexes have also been taking out the series of lower highs established over the summer. The 20-day and 50-day are close to aligning bullishly, with the 20-day close to trending above the 50-day.The summer sell-off, combined with this fall’s rally, appears to have created some bullish base patterns. The sideways action on Wednesday, Thursday, and Friday looks to have formed a handle that often appears near important highs. This is another bullish indicator.Not every indicator is cooperating with the bulls, however. The SPX buy-write index has not made a high above its October high, which I see as a market non-confirmation. Also, the index had a sharp rise on Tuesday, but this buy-write index didn’t budge. This is worrisome enough to keep me from being fully invested. I don’t like it.Junk bonds are pointing higher after breaking down briefly in October. This is another chart that appears to be favoring the bulls.I mentioned last week that I chose this chart of the summation indexes to serve as my line in the sand. If these indexes break down below the moving average, then I will be a seller.I would like to conclude my discussion about the short-term cycle with a look at the 52-week new lows. This week, though, I am looking only at the common-stock new lows because they are doing such a good job of showing the change in market sentiment after the favorable inflation news that pushed the market higher.When the indexes are moving higher, you would need to see the number of new lows drop off dramatically. Otherwise, the short-term cycle uptrend is probably just a bounce off the lows in a larger downtrend. During this past week, we got that dramatic drop in new lows down to harmless levels, and this next chart does a good job of showing it.The drop in new lows doesn’t mean that the indexes won’t pull back in the short-term, so don’t get overconfident. Also, I haven’t shown it in a chart, but the Nasdaq new lows are still a bit elevated. Nevertheless, it is definitely a sign that the market favors owning stocks for higher prices when there are these few NYSE common-stock-only new lows.
I still have about 20% cash on the sidelines, and I probably won’t deploy it into stocks because I still have some concerns about the market based on the buy-write index. Also, the PMO index is at the top of the range, which means it is a bit late to be deploying. However, despite these reservations, the market indicators are definitely pointing higher, meaning that the trend is with the bulls over the short-term.As I mentioned earlier, yields are cooperating with the stock market bulls. The longer-term Treasury yields peaked in October and look to be headed lower, or at least they have the look of topping out for now. Of course, if yields drop too far, then there is the concern that there is a rush to Treasuries that potentially indicates a weak economy. So, let’s hope yields hold steady for now. This chart is bullish for stocks.Here is a look at the same yields but on a weekly chart with a 10-week moving average. Based on this dip under the 10-week after a solid multi-month uptrend, I have changed the medium-term trend for bond prices to “up.”The best-performing area of the stock market has been technology by far, but a few other groups have responded nicely, too. Construction stocks were on the ropes, but they are now looking promising once again.
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