It looks to me as though the market has started — or is near to starting — a new short-term downtrend, with the PMO index ticking lower.
The NYSE bullish percent has clearly turned lower, but the Nasdaq bullish percent has continued to point upward. So, what to think of this divergence? I will generally follow the NYSE BP rather than the Nasdaq BP (not everyone agrees with this), but I also view divergences like this negatively. I much prefer to see a bull trend in which the market’s exchanges are in sync.
The chart below shows three of my favorite indicators, and each of them turned slightly lower on Friday. One day is not enough to get too worried, so let’s not make too much of it, but I certainly think it means that I won’t be a buyer on Monday, and I’ll be making sure I am ready to get defensive if needed.Also, it shows an elevated number of NYSE new 52-week lows while the PMO index is near the top of its range, and you likely know how I worry when this occurs. This is the second time in two months that this very negative market signal has appeared. I am ready to get defensive if the market decides to sell off.
The Summations of the NYSE and small-caps are seemingly confirming the turn lower shown in the PMO index. The Nasdaq hasn’t responded yet, but I’m guessing if the NYSE continues to move lower, then the Nasdaq will follow lower, too.
The price of this junk bond ETF is no longer showing weakness, which means to me that it needed to consolidate and move sideways before resuming its uptrend. This is a good sign for stocks. If this uptrend line remains unbroken, then I’d likely be a buyer of stocks when the PMO index reaches down to the low of its range.
I continue to be worried about a stock market in which one of the most important sectors is weak. This next chart shows the semiconductor ETF below a downtrend, below its 200-day, and below its 50-day, which is now also below the 200-day. The recent move back to the 50-day looks like a bearish counter-trend so far, although it does appear that there is significant support in the 195-205 range.
This is a bit of good news. Sentiment has started to retreat from the overly bullish levels. If this gauge works its way into the fear range, that is when I’ll be more comfortable buying and holding stocks.
Bottom Line
I have a healthy level of cash in my accounts, and I own an inverse SPX ETF as a hedge against the stocks I continue to hold and don’t want to sell. I have trimmed any stock that looked to be extended.Meanwhile, my favorite longer-term stock market indicator has continued to point higher quite nicely. However, it has also been looking extended, so a degree of caution is called for despite how favorable it may seem.
This breakout certainly turned out well. In early 2024, the price of this next ETF retraced back to the highs of late 2021 and then formed a perfect-looking multi-month handle under the 2021 price high. Then, in the late summer of this year, it broke to new highs in spectacular fashion. Just awesome.And now what? Buy, hold, or sell? I don’t know. I wouldn’t be buying more right now, but I honestly don’t know whether to hold or sell.
Outlook Summary
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