HeadlineCharts Saturday, October 26, 2024

General Stock Market CommentaryThe short-term downtrend started on Tuesday with a clean break of this medium-term uptrend line. The PMO index clearly shows most stocks shifting to a short-term momentum downtrend. The bullish percents of the major exchanges showed stocks shifting to short-term technical sell signals. However, this chart indicates that the bullish percents have declined only mildly meaning that the number of stocks on fresh new sell signals is not alarming at the moment.
On Monday, the summation indexes were giving a fairly good hint that stocks were likely to start to show weakness, By the middle of the week, the summations were confirming the new short-term downtrend, When the market shifts to a short-term downtrend you have to watch for signs of how severe the selling could be. In other words, will the downtrend be a short-term dip in prices that proves to be a buying opportunity, or is it the start of a more severe price pullback?In order to judge the potential severity of the downtrend, I like to watch junk bond prices. It helps me assess the health of the stock market. When junk bond prices are holding above a nice uptrend I’m optimistic about stock prices. Similar to junk bond prices, I watch the number of new 52-week lows to assess the market’s health. The number of NYSE new lows remains at harmless levels which favors buying the dip in stock prices. The number of new 52-week lows among NASDAQ stocks is too high, but it has been like that for many months that I’m not sure how important it is. I would feel better though if the NASDAQ new lows were under 100 or so. I didn’t show the chart of the 5-day averages for the major indexes this week. That is because the majors moved sideways for the week and didn’t show a clear drop below their 5-day averages. I have a very hard time declaring a new downtrend without seeing the SPX and NDX under their 5-day averages, but I think we have the rare exception. Bottom Line: I have about 20% cash and I’m looking forward to seeing the PMO index reach all the way down to the bottom of its range so that I can redeploy cash by taking advantage of price dips that represent buying opportunities. ——— This is my longer-term market indicator and it is pointing upwards in a way that favors higher stock prices. Despite some market weakness, this ETF is holding nicely above the breakout level. Bullish This ETF is also holding its gains above a significant breakout level. These stocks have been under a bit of pressure from the tick upward in longer-term Treasury yields. The slight pullback in prices was expected to some extent however because of the nice run that they had. Ditto for these stocks. Cybersecurity stocks continue to be a good area of the market in both the short and longer term. If these leading ETFs maintain prices above their trendlines, then the entire market continues to move higher too. This CNN Fear-and-Greed index hasn’t moved much since stocks came under pressure this past week. I’d like to see the index in the Fear range when I deploy my available cash. I haven’t been paying enough attention to this indicator over the past few months. It’s definitely a good one.

Outlook Summary
The short-term trend is DOWN for stock prices as of Oct-22The ECRI Weekly Leading Index points to ECONOMIC RECOVERY as of July 2023The medium-term trend is UP for Treasury bond prices as of Feb-01. (yields down, prices up)

Strategy