MON Sector Strength - TUE Rates - WED Medium-Term - THU Commodities Currencies - FRI Sentiment - SAT Longer-Term

The Longer-Term Outlook

I am feeling very negative towards the stock market again, so it is good therapy for me to start with the most bullish chart to even out my mood. This chart below is clearly bullish, and I don't see any way to be a bear with a chart of the cumulative advance/declines that looks like this.

More people are beginning to talk about the weakness in this group of stocks. In fairness, this chart is neutral at the moment, in my opinion. It could be a base building pattern, so we won't know until the pattern breaks up or down. In other words, it isn't a head and shoulders until it breaks down.

I am seeing potential head and shoulders in a lot of charts. Are these patterns real or is it an illusion caused by my negativity?  

This is the most bearish of the charts I review. The market participation looked like it was finally starting to improve last week. Now it is weakening again. This is quite a negative divergence, and it has lasted for quite a while. However, the market has proven that it can move higher despite weakness in a large percentage of stocks...and despite my protests.

The ECRI index didn't change from last week, and now M2 growth is showing tiny signs of turning up. What to think? The ECRI index is clearly weak, but will it continue to weaken or start to turn higher?  

We've seen this so many times over the years where low readings for this index make the economy look vulnerable only to see the index start to strengthen... October 2017 for instance. I think the small caps are key. As long as they hold above this trend, then the ECRI index is a caution sign rather than a signal to sell.

The Silver/Gold ratio is below where it was at its worst in 2008. I just can't believe there is inflation with this chart looking so weak. I think this chart is saying that we'll see higher short-term rates despite very low levels of inflation. I don't have any other explanation.

The dollar has been strong this year, but the larger pattern is unclear to me. I'd say the longer trend is lower? Also, why do we care about the dollar? he dollar matters a lot when deciding whether to hold US or foreign stocks. A strong dollar means US markets are likely to outperform foreign markets. Beyond that, I am losing track of why it matters.

This year, the combination of trade tensions and a rising dollar have hurt the large industrials that rely on exports. And this has helped the domestic-oriented small caps. But the rising dollar also makes imports cheap, and we import a lot, so this has helped our consumers and consumer businesses. I am sure there is more that I am forgetting, but the point is that, at the moment, I am not completely sure how to invest based on the direction of the dollar.

What else is important?  The time of year isn't good for stocks. Tim Burk has mentioned in today's column that he thinks current market weakness is September-related.

Sentiment isn't good for stocks. The current reading of the II Newsletter Survey is 60% bulls which, from a contrarian's point of view, works against stocks. My personal favorite indicator is the level of new 52-week lows, and it is currently too high.

Bottom line: I am worried about stock prices, but I am committed to following the trend which remains higher. One more thing... rates. The entire curve is now above their 50-day averages, and this would mean lower bond prices. 

Outlook Summary:

The long-term outlook is cautious. 
The medium-term trend is up as of May-10. 
The short-term trend is down as of Sep-5.
The medium-term trend for bond prices is down as of Sep-7 (prices lower, yields higher).

Investing Themes:

Technology

Medical Products

Cyber Security

Payment Processors

Small and Micro Caps 

Gaming 

Strategy:

• Buy large cap stocks and ETFs at the lows of the medium or short-term trends.
• Buy small cap growth stocks on breaks to new highs in the early stages of short-term up trends.
• Stop buying when the short-term trend is at the top of the range.
• Take partial profits when the uptrend starts to struggle at the highs.
• Never invest based on personal politics.