This momentum indicator shown in the top panel of the chart below, combined with the large red candles of the PMO in the lower panel, gave a clear sell signal.
The bullish percents dipped under their five-day averages and are now pointed lower. However, they haven’t moved much so far.
The Summation Indexes of three of the major indexes crossed below their five-day averages, confirming the other indicators.
The number of new 52-week lows on the NYSE remains very well-behaved. This is what we want to see when it is time to start buying stocks again. The Nasdaq new lows are a bit elevated, which is a concern, and this will be important to remember when we get too comfortable owning stocks.
The new short-term down cycle occurred just as the SPX rallied up to the previous price high established in 2021. This turn lower in the SPX at the previous high is what we should expect because the previous high often acts as resistance. Now we want to see a low-volume sell-off for a few weeks to form another base from which the SPX can push through resistance to new highs.
Bottom Line
I have a good amount of cash on the sidelines, and I will deploy the cash back into stocks in a few weeks when it looks like the selling is complete.The buying of bonds since late October has pushed down yields and pushed stock prices higher. Now, it looks like yields have stopped going lower as bondholders are taking some profits. So far, I don’t think it is too much to worry about.
The collapse in oil prices has also helped push stock prices higher. Technology stocks are particularly helped by lower oil prices.
This is the longer-term stock market indicator. It is the cumulative trend of net new highs/new lows. It continues to show a solid buy signal for stocks, but I expect that if stocks continue to correct, it will at least level off in January.
The ECRI Weekly Leading Index also points higher and is well above the zero level. This index indicates economic activity in the weeks ahead, and economic activity generally favors higher stock prices in the medium-term
Outlook Summary
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